Approximately 20% of small businesses fail within their first year of business. While this isn’t as dismal as the often-proffered “50% of small businesses fail in the first year” stat, know that as many as 45% of SMBs fail within the first five years. Only 25% of small businesses make it to their 15th anniversary. Though there are dozens of reasons small businesses fail, some mistakes make failure much more likely.
Below are the top three mistakes entrepreneurs make, and what you can do to avoid them.
Attempting to Run a Business Without Any Business Knowledge
Too many aspiring entrepreneurs assume that all it takes to make a business a success is an idea and the passion for bringing it to life. While passion and a vision are undoubtedly important, they’re only two ingredients of a long list. One ingredient that is often overlooked is education.
Only 44% of entrepreneurs have a college education, which shows that you don’t need a college degree to succeed in business. However, just because you don’t need it doesn’t mean you should forgo it.
A higher education can help you develop the skills and connections you need to grow your business. For instance, a master’s program in business can teach you important skills that many entrepreneurs don’t have, such as business leadership, management and accounting. It can also give you a head’s up on which mistakes to avoid so that you don’t have to learn them the hard way. An online program can allow you to obtain the education you need while still having time for your business.
Choosing the Wrong Type of Business Entity
Per the Small Business Administration website, there are nine types of business entities you can form, each of which comes with distinct advantages and disadvantages. Those entities are as follows:
- Sole proprietorship
- Partnership
- Limited liability company
- C corporation
- B corporation
- S corporation
- Non-profit corporation
- Closed corporation
- Cooperative
You can also combine different structures to benefit from the various advantages of several while reducing the number of pitfalls. Whichever route you choose, it’s essential that you seek legal help. A good attorney can advise you on the structure that will best help you achieve your goals, how to remain in compliance with local and state laws and how you can minimize startup costs while setting yourself up for the most potential profit.
Going Into Business With a Friend
Your best friend is your biggest champion, the person who helped you develop your business idea and the person who encouraged you to bring it to life. He or she also happens to want to invest in your business by becoming a co-owner. Before you jump on the idea, consider the various reasons going into business with friends or family members is a terrible idea. Among others, those include:
- Disagreements over everything from finances to roles to goals could cause a relationship rift.
- Your friends and family members may struggle to remain objective and, therefore, be unable to identify risks and weaknesses.
- You may struggle to assess your partner’s performance and vice versa.
- If your business fails, so too could your relationship, which may cause a divide between friend and family groups.
There are dozens of mistakes you can make as an aspiring business owner, each of which may cost you your time and monetary investment. Here’s hoping your business finds success by avoiding the top three.
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