No one starts a business and plans to fail. Entrepreneurs often focus on a product or a service with visions of grandeur and pots of gold at the end of the proverbial rainbow. On the surface there’s nothing wrong with that. Entrepreneurs are often great visionaries. That doesn’t mean all entrepreneurs are great business men and women.
According to the Small Business Administration 7 out of 10 entrepreneurs will fail in the first 2 years. The majority of those will fail not because of a bad product, or bad service or the way their customers were treated. I have talked with many a failed entrepreneur who wishes they could have a do over.
The main culprit is money, or we should say the inability to manage money. Again no one starts a business and plans to fail, but many businesses fail to plan, especially in the area of finance and money.
Let’s take a look at some surefire ways to get your startup business in financial trouble in a hurry.
Why New Entrepreneurs Fail
Avoid Paying Taxes
No that doesn’t mean you are going to pay your taxes, but the temptation to use revenue and allocate cash resources to initiatives that may attract more customers or boost profits can be overwhelming. All business owners will be faced with the decision of either paying tax obligations or building your business.
Money is especially difficult for any small business in its the formative stages. Don’t make the mistake of using money that should be going to Uncle Sam in hopes of catching up later.
You should take advantage of every legal tax deduction to minimize your tax obligation but make it a part of your business plan to pay all tax obligations on time.
This could include payroll tax obligations, franchise taxes, property taxes, or sales taxes.
Finding yourself in debt with the government in back taxes is not something you want to experience for yourself or your business. Pay your taxes.
Borrowing Money on Credit Cards
Assuming you have qualifying personal credit you can be sure you will be inundated with business credit card offers, like this one from the first day you establish your business. Business credit cards in and of themselves are not bad. In fact business credit cards have funded many successful businesses.
Business credit cards normally require a personal guarantee, especially for new businesses, and that’s important to remember as you the business owner will be responsible for any debts incurred. In business, those debts can pile up in a hurry.
An area that quickly gets new small-business owners in trouble is taking cash advances out on their business credit card. Avoid borrowing on future revenue, and worse yet avoid borrowing on your potential revenue.
As we mentioned, using credit cards in business can be advantageous. Not being able to pay off those credit cards are carrying a balance from month to month will only add to your expenses. Credit card companies have less tolerance for nonpayment when it comes to business credit cards and losing your credit privileges is difficult for any business to recover from.
Investing in Losers
Seldom do entrepreneurs have an idea that they don’t love. That’s their nature, but the fact is not all ideas are great ones or even good ones. Before outlaying large sums of money on a marketing idea or an investment for your business, make sure that people are going to be interested in your product or service.
Research and development for new products can ruin a balance sheet very quickly. Test your product on friends, family or focus groups.
Why spend inordinate amounts of advertising on your new product if they are doomed to fail before they reach the market. Again this ties into having a sound business plan.
Accept the fact that not every idea and by all means don’t throw good money after bad. The best ideas are often the most simple.
There are many people who claim to be entrepreneurs. Most are ambitious, hard-working, and well-intentioned. Don’t let your idea or your new business be swallowed into financial ruin because of business decisions you fail to make about managing your money properly.
Pay your taxes, avoid borrowing on credit cards, and don’t invest in loser products. These basic principles are all within your control.