By Beth Braverman
So you started your own company. It is a step that requires courage – and a clear view of the risks ahead. You can help reduce these risks by being aware of common mistakes and making sure you set your business up for success in the first year and beyond. Sounds easy enough, right?
Even if you’ve had a successful history of starting a business, it’s easy to stumble in the early days of starting a new business. Here are some of the missteps that small business owners often make when starting out – and how you can wisely avoid them and help protect your business.
Tries to do too much alone.
As an entrepreneur, you wear a lot of hats. One day you’re running sales and the next you’re working on back-end HTML. However, there are some areas of your business where you’re better off working with professionals who spend their time keeping tabs on evolving rules and risks.
For example, while more than half of small businesses accept third-party payments, only a quarter of small business owners were aware of the new tax rules for those payments, according to a recent Waze study. A good CPA can help ensure these companies don’t accidentally make mistakes when filing their tax returns this year.
“To protect what you’ve built, you need a good team around you,” says Jen Wilkes, an agent at State Farm® and a small business owner herself. “That includes a lawyer, an insurance agent, an accountant, and a financial advisor.” (No, reading a small business law blog does not qualify you to be your own attorney.)
People like a State Farm insurance agent and a CPA who understand your industry buy you time to focus on the areas of the business you have expertise in—and protect you from costly problems.
Neglecting to prioritize business insurance.
When it comes to risk reduction, getting business insurance is one of the most important ways you can protect your business, but more than 43% of small businesses are uninsured, according to Verisk. A Business Owners Policy (BOP) like State Farm’s allows you to create coverage tailored to your needs, which can include general and professional liability, property and equipment insurance, or loss of income.
Depending on your industry and the size of your business, you may need additional policies such as: B. commercial car insurance. If you have employees, most states also require that you have workers’ compensation insurance, which will pay you if you get sick or injured on the job. There’s a lot to consider, but this is where your insurance agent’s knowledge comes into play!
Have unrealistic growth expectations.
Dreaming big is one of the most exciting aspects of entrepreneurship, but it’s also important to be realistic about the pace at which your business can grow sustainably. While it’s entirely possible that you’ve just started the next Fortune 500 company, it’s also likely that it won’t go global in the first year or two. A 2020 study in the New England Journal of Entrepreneurship found that overconfidence in company founders can ultimately lead to company failure.
You don’t necessarily need a formal business plan (although it can certainly be useful) when starting out, but you do do You need to have a realistic sense of how much revenue your business could generate each year and how best to use that money once it comes in. Thinking too big too soon can result in you overspending or overpromising your customers, both of which can be bad for your business in the long run.
Lack of building business credit.
Some entrepreneurs like to boast that they built their business with personal funds and a personal credit card. However, the larger a company gets, the more likely it is that at some point it will need outside capital or a business loan to support cash flow.
According to the Federal Reserve, only about 8% of companies with high credit risk were able to get the financing they needed in 2021. A good business loan not only makes it easier for your business to borrow money when needed, but also allows you to do so at a better interest rate. To start building your credit, get a business credit card and pay off on a regular monthly basis.
Waited too long to shoot.
The way businesses work can change quickly—and that’s true in virtually every industry. Even established business owners must constantly re-evaluate all aspects of their approach to find areas where change could better position the company. A McKinsey study found that highly successful, agile companies that have undergone successful transformation achieved 30% gains in efficiency, customer satisfaction, and employee engagement.
“Companies need to adapt faster than ever,” says Wilkes. “Whether the need to adapt results from technological shifts, government regulations, marketing avenues, or other changes, it is critical that you are willing to adapt and adapt.” Keeping up with the times is important to protecting what you do have built up.
Find or visit a local agent statefarm.com/smallbusiness to protect your business today.