5 common mistakes when setting up a business and how to avoid them
- Create a solid business plan
- Consider all financial implications
- Get professional advice when choosing your legal structure
- Use as many free resources available, don’t be shy
Setting up your first business is an exciting and fulfilling experience and everyone will have their own unique strategy to do so. Ultimately, there will be lots of different factors to consider from finances to fine tuning your product or service. It's therefore unlikely that the process will go down without any bumps in the road, and although this is a learning process, these mistakes can be quite damaging. Here are the five common ones encountered when setting up your first business and how to avoid them.
Neglecting your business plan
A common initial mistake that most entrepreneurs will make is failing to create a business plan. There’s a recurrent misconception that a business plan is only useful if you are seeking investment, but this is not the case. It did help me secure my £80,000 investment from Deborah Meaden, but more importantly, it encourages you to conduct vital research which is crucial to identifying any potential pitfalls. You then have the opportunity to find solutions to them before they happen. If your business plan highlights that you’re in a saturated market, you can then figure out your unique selling point to differentiate yourself. GripIt is different because the employees think outside the box and that’s one of the main reasons why we are successful. So set some time aside to do this research and create the plan and you’ll soon see the benefits.
Failing to carefully consider margins
When venturing into your first business, you need to consider all of your costs. Often, first time business owners can get consumed with whether their product or service alone will make money and can overlook factors such as whether they will be selling direct or to a third party. If you haven’t factored this in you may end up having to take a significant hit in the future. When starting a first business, you may seek help from several parties to begin with as you will need help in several areas and this is fine so long as you ensure that all of these parties are financially considered.
Overlooking what type of ownership will best suit your business
Don’t make the mistake of overlooking the legal structure of your company as each will have different tax implications so it’s vital you spend time working out what’s best for you. Whether you’re a sole trader, private limited company, partnership or co-operative, figure out what works for you. I initially started out as a sole trader for GripIt; but now have a team that work with me. Sole trading will often have the lowest tax rates, but it can be significantly harder to raise money, so finding the correct balance for you is key. As well as ownership, you also need to consider the kind of insurance you’ll need and the simplest way to do this is to find a broker that specialises in small businesses.
Not making the most of free resources
Many new businesses fail through a lack of funds, so you can’t afford to not take advantage of financial breaks where you can get them. The cost of completely starting from scratch will most likely be quite high; from buying resources to learning how to operate software and bringing in help. For this reason, there will be forms of help including government grants which you may be eligible for and tax breaks for investment in start-ups. The Regional Growth Fund is also available for Businesses looking for funding of less than £1 million as well as start-up loans which is a government-funded initiative which provides loans, mentoring and support for start-ups or very small, early-stage businesses. All of these contribute when you’re looking for help.
Failing to protect your business
Trademarks are vital to protecting your brand name and increasing its value, especially when starting a new business. You need to ensure that you don’t fall into the trap of investing all of your hard work into your business to then find it is not unique. In 2009, a year after coming up with GripIt, I applied to have my invention patented — in order to turn it into a product that I could sell. Getting protection can prove valuable in the future but can be very costly to begin with. You can keep costs low and save a few thousand pounds by writing your initial patent yourself and then handing it to an attorney to handle. Always use an attorney as they are the experts and can put measures in place to avoid others cracking your patent.
It’s important not to get overwhelmed when starting up a business. Ensure you avoid simple yet easy to make mistakes such as neglecting an overall plan as this can prevent you from anticipating any pitfalls. Failing to carefully consider all parties involved in your company can eventually end up in you taking a bit hit, but if you don’t overlook details such as ownership and government grants that could save you money in alternate areas. Overall, ensuring you protect your business will make sure that all of the other steps don’t prove wasteful and working through this learning process will ensure maximum success for your new company.