In the world of entrepreneurship, risk is the name of the game. Starting a business of your own is a big decision, especially if you’re leaving behind a “secure” job for an uncertain future. But that doesn’t mean your decision should be based on fear.
One of the most common fears for someone starting a new business is that they will make a mistake so big that it will cost them their business. This certainly is possible, but the best way to prevent it is to think ahead. Here are 10 home based business mistakes to avoid.
1. Not Being Financially Prepared
A large percentage of businesses can expect to do poorly when they first get started. They may not turn a profit for months, or even years, in extreme circumstances. For this reason, you need to have enough money to cover ALL of your expenses until things begin to look up.
I’m not saying you won’t make ANY money your first year. I’m talking about making more than what’s needed for expenses. If you took out loans or financed equipment, those expenses will gobble up everything until you either make more or pay them down. I recommend saving enough money for at least two years worth of living expenses.
2. Failing to Acquire Permits and Licenses
Depending on the type of business you get into, you may need a number of different permits to operate. You might need a business license to operate in your state or even within a certain field. You’ll have to pay for these, regardless of how much they cost. If you think operating legally is expensive, imagine how costly it would be to pay thousands of dollars in fines and legal fees to defend yourself when they finally catch up to you.
3. Not Taking Advantage of Tax Breaks
Since there’s no way to predict how successful your business will be, it makes sense to pursue every available advantage. Suppose you don’t make a profit during your first year. How are you going to pay for the equipment, supplies and utilities? Don’t forget that you’ll also have to pay taxes on whatever your business earns.
If you operate out of your home, you might qualify for a home office deduction. This can be highly beneficial, provided you meet the requirements. The most important one is to have a designated space within your home that’s used only for business. If you’re used to working in different rooms, you might want to make some changes, as this deduction could save you loads of money at a time when you most need it.
4. Not Separating Your Business and Personal Finances
Taxes can be a pain, especially for someone with their own business. It’s even more complicated if you’re still working at another job, while trying to get your business off the ground. It’s not unusual for new and inexperienced business owners to use their personal bank accounts and credit cards to conduct business. While this might work in the beginning, it can lead to a number of problems down the road.
The most obvious issue is that it can become difficult to track your profits and expenses, when they’re mixed in with personal transactions. If you ever get audited, you’ll have your work cut out for you, trying to separate that mess. Keep in mind that if you’re being audited for profits and losses, the government can only look into your business accounts. But if everything’s coming and going from the same account, you will have forfeited some very important protections.
5. Not Creating a Business Plan
One of the most important reasons to write a business plan is to have something to show banks and investors when you need financing. Not only will it show them what your business is all about, but it will help demonstrate your seriousness and prove that you’ve given this undertaking some serious thought.
Another important reason for a business plan is to have your objectives and priorities laid out where you can review them from time to time. When things start getting crazy and stress levels rise, it’s easy to lose focus on what you’re trying to accomplish and on what’s most important. Being reminded of your goals can help you determine whether your current strategies are working, since you may have to adapt to changes along the way.
6. Not Spending Enough Time on Your Business
You can’t expect to get more out of your business than you’re willing to put into it. You’ll have to put forth enough effort for the return on your investment to be worthwhile. If you’re used to working 40 hours a week as an employee, that won’t be enough. You should expect to work 60 to 80 hours each week, since you’ll be running the entire show for some time. Those weekends you once held dear would be best spent growing your business, as it’s impossible to know what the future might hold.
7. Treating Your Business Like a Hobby
If you intend to create a profitable business, you won’t have the luxury of treating it as a mere hobby. Hobbies are fun and nice to have, but they’re meant to be leisurely activities. A legitimate business deserves to be treated with far more importance. Remember that no matter what line of work you’re in, your business is still your job and it should be approached with all the seriousness of any other job. You cannot allow a lax attitude to dictate the way you handle your customers or the work you do for them.
8. Not Keeping Up With Your Competition
Never ignore your competition. You’re in the same business and it’s in your best interest to know how they’re doing and what they’re doing. You should know what they charge for their products and services, especially when they’re similar to yours. Remember that they may have figured out a way to lower their prices and if you’re not aware of this, you won’t understand why your sales are faltering.
During your first year, you can’t afford to lose anymore money than is absolutely necessary. It makes sense to be aware of your competition’s prices, because you might be able to gain a competitive advantage by sourcing your materials elsewhere. You should also know what makes their products different from yours. Keep in mind that it’s a dog-eat-dog world and if they’re good businesspeople themselves, they’re probably looking into what you’re doing.
9. Neglecting Your Marketing
Promoting your business at every opportunity is just as important as having the right skills. Remember that no one can buy your products or services if they don’t even know that you exist. There’s no sense in spending all that time and money developing products, if you’re not going to promote them enough for people to see.
It’s understandable to be reluctant about spending lots of money on ads, but you may not even have to. Basic social media is free and if you do decide to pay for some more aggressive ad campaigns on their platforms, it’s still not terribly expensive, considering the reach it gives you. Just remember that the best approach is to begin your social media marketing campaign BEFORE you open for business, because it could take some time to grow your following.
Also keep in mind that the sooner you begin promoting your business, the sooner you can begin building anticipation among your followers. Take this as an opportunity to let the public know what you’re doing and how much you’re planning to charge. Depending on the nature of your business and where you expect your customers to come from, it might make sense to create some business cards and distribute flyers around town.
10. Thinking There’s Nothing More to Learn
Starting and running any kind of business is a learning experience. The world’s greatest entrepreneurs and innovators all had something to learn beyond what they knew when they got started. If you know anyone who runs a business of their own, it would be a good idea to touch base with them and ask questions. They might be willing to mentor you, as you navigate this exciting, new world.
You’ll find that many successful business owners are more than willing to share what they’ve learned with someone who wants to learn. They remember what it was like when they first went into business and all the challenges they had to face. They will also be the first to admit that for entrepreneurs, the learning never stops. As technology progresses, you’ll have to learn new skills to keep up. If you fail to do so, you could be eaten alive by your competition.
Remember that starting a home based business and making it successful is an ongoing process. It’s not some destination you’re going to arrive at one day and never have to worry about again. There will always be a potential for making mistakes like the ones mentioned here, even long after your business is established. Don’t allow yourself to get so comfortable in its success that you slack off and allow something regrettable to occur. There are always consequences to consider, even if they aren’t readily apparent.