Starting a business is a dream for many ambitious individuals. Going out on your own can be an exciting endeavor, but it comes with the inevitable surprise. Surprises come in the form of unexpected costs, changes in the economy or even a partner getting pregnant. Having a plan for these unexpected hiccups is what determines success or failure for most businesses. Here are 5 things mistakes many first time business owners make that can help you when starting your business.
Working with friends.
Working with friends can be a slippery slope. making this decision should be done with caution. It has been said by many successful business men that business and friendship should never be mixed. It could damage your personal relationship and it can damage the business if feelings get in the way of business. A business owner should always be able to voice concerns respectively with anyone they are working with. That goes for partners and clients alike. If there is a long term friendship mixed in to a business relationship the owner will at some point be forced to decide between business or friendship. Do not put yourself in that situation.
Making sure to properly classify your business.
No one classification is right for every business. Two entrepreneurs running very similar businesses might classify differently for a number of different reasons. Those classifications might suit the needs of both business owners, but thinking long and hard about how you would like to set up your business can prevent larger headaches from arising down the road. Anticipating where your business might be down the road is crucial. How many employees you plan to hire, how ownership is going to be set up, will the owners all be active in day to day operations are all things that need to be considered before incorporating. Here are the 6 main classifications business owners choose:
- Sole Proprietorship
- Limited Liability Corporation (LLC)
- S Corporation
This is important because you pick the wrong type of classification and then change how you do business it can add filing fees, attorney fees and accounting fees to your bottom line. For example, if you start a business as a sole proprietor, then you add employees to your payroll there might be a need to reclassify. Another thing to keep in mind is, are you the only owner or are their other partners. Another factor might be if all partners are going to be involved in the day to day operations of the company? These are just of a few of the many things you should consider before classifying your business.
Putting business expenses on personal credit cards.
Business owners should never use their personal credit card for business purposes. Aside from accounting purposes, the main reason for this is because building a credit history for your business can come in handy as your business grows. As your business grows there may be a need to take on a loan. If you are not establishing a credit history for your business as you grow it will be more difficult to get the necessary loan needed when the time does arise.
Making sure your business is classified properly when purchasing Commercial Insurance.
Workers’ Compensation and General Liability are required by law in nearly every state in the country. It is almost impossible to operate a business without one or both of these coverages. The type of business you are in can dramatically change the price you pay for premium. From an insurance companies’ perspective, it is less risky to insure an accounting firm than it is to ensure a construction business. For that reason, they charge different amounts of premium based on the dangers your industry faces. Even within industries there are different classification codes. Landscaping is a pretty simple example that has two separate class codes that are different in risk and in price paid for commercial insurance. If you do not clarify this with your insurance agent, you may pay for more in premium than is necessary.
Business owners sometimes let perfection get in the way of progress.
Many entrepreneurs branch out on their own because they have confidence in themselves. They believe they can do it better than someone else. Sometimes this breeds success, but other times it causes entrepreneurs to focus solely on perfection. In some industries perfection is rarely attainable. In those industries, even if you do obtain perfection, it is frequently too late. You have waited so long to make something perfect that you are behind the times and your business is missing out on valuable revenue. Don’t miss out on business because you are searching for perfection. This can be a slippery slope for many business owners and it is a good conversation to have with yourself and your partners before you start a business.
This article was written by Mitchell Sharp from Business2Community and was legally licensed through the NewsCred publisher network.