Small Business Pitfalls

We've all heard the scary statistics about how many small businesses fail in their infancy. Part of what I do is provide consulting work for small businesses so I see first hand what some of the biggest culprits are.

1. Too Much Borrowed Money
I'm not sure if this will continue to be as big of an issue because the banks have all but put a freeze on small business lending. If you're one of those unlucky/lucky ones who can get a lot of leveraged funding, borrower beware! I highly suggest starting a business with your own money or with investors. If you do have to borrow money, try not to be more than 50% leveraged. You may not have an employer but if you are borrowed up to your hairline, you are working for the banks, and that's not what you got into business to do. Here's a statistic for you ... 100% of the businesses that filed for bankruptcy were over leveraged. I don't need a source for that one, it's pretty self explanatory.

2. Wrong Motives
If your primary motive for starting your own business is based one of these statements, "I want to be my own boss," or "I don't want to work for anyone else," then you may be one of those small business casualties. Owning your own business is as glamours as it is messy. If you lack passion and discipline you won't have the necessary ingredients to push past the pain and pursue the full potential of the business. You need something more than a disdain for working for someone else.

3. Lack of Planning
Planning is very important and covers everything from finances to marketing. For brevity, let's stick to the financial part of planning. Remember that employer who kindly withheld all of your taxes, and paid them on time to the federal and state governments? Well you kicked them to the curb so it's all on you. You can't just collect the income and forget to pay your real employer (i.e., the gov't) their cut. I've seen several small businesses get into this rut and for those who survived, they came out with very little skin left in tact. You do not, and I repeat, do not, want to get into a situation where you're behind on self-employment and employer taxes. You'd be left wondering if you owe the gov't or a loan shark. Can you say compounded interest DAILY!

4. No Marketing
So what if you have the best product or offer the most fabulous service, if no one knows you exist what good is that doing you? Marketing doesn't have to be very expensive. At a minimum you should have a website and some business cards. Depending on where you shop around, this could be a $200 or less initial investment. Perhaps I'm a website snob, but you'd be hard pressed to get me to do business with an establishment that does not have a website. That's the first thing I ask for when I call or if I'm speaking to someone about their business.