No job is as fraught with risks as working for yourself. Not only do you have nobody to blame but yourself for being forced to work on the weekends, you also have to ride the ups and downs of owning a business. While there is some doubt that the rumored four out of five new business failures is accurate, it’s still unlikely you’ll meet immediate success and be catapulted to wealth and fame in a matter of weeks. It could happen, but looking at those who have gone before, it’s unlikely.
Of course, there are some mistakes even the smartest among us make. It’s hard to be perfect all of the time, but watch out for the obvious pitfalls of the biggest entrepreneur mistakes.
Mistake #1 – You started without direction.
Sometimes you’re all but forced into business for yourself with a faltering economy and such, but if you’re working from some notes you took on a bar napkin rather than a real business plan, you’re going to have a rough road ahead. Not every entrepreneur makes millions and most don’t feel a burning desire to make even close to that amount, but getting money in the bank means planning out how you’re going to get cash in the door – in detail.
While you don’t need to spend weeks typing up a formal business plan necessarily, you do need to have a plan with immediate action steps to succeed on your own. A padded savings account can buy you some time, but wasting your savings on poor planning is painful. Instead, start small and with precision.
- How are you going to make money?
- Where are you going to find customers or clients?
- What are the steps between planning and earning?
Once you know what you’re going to do and exactly how you’re going to do it, you can start taking those necessary steps. Don’t fall into the common trap of doing the detail work like building a website or creating a logo before you have a comprehensive plan in place. By starting small, you’re able to move more quickly and get some cash in the door while you naturally expand the business in other profitable directions.
Mistake #2 – You’re on your own before you’re really ready
It’s a glorious dream to just walk out of the office ready to start your own business, but not only do you need careful planning, you need a running start. Those transitions from office to entrepreneur are rarely as smooth as they seem from the outside looking in. To make the jump smoothly, you should start working on your new business before you leave your current position. Be careful not to break any contracts or violate creative licenses, but socking those handy paychecks away in savings and doing extensive networking within your industry can be tremendous in getting up and going right away.
If you do what seems reckless and brave –walking out of the office ala Jerry Maguire, you’re not only giving up the chance to do the groundwork for your new business at night while still earning a salary, you’re also risking your reputation in certain industries. Being known as dramatic and flighty might not help you get off to a good start in the small world of your local industry. Stay professional and eek out everything you can (legally) from your current spot to avoid a massive hurdle when it’s time to go out on your own.
Mistake #3 – You don’t plan for taxes
New businesses are expensive and all of your funds are likely going out the door as fast as they are coming in to keep you housed and keep your business alive. However, while your business is growing, don’t neglect to plan to pay the government its share. It’s better to take a loss for the year with your business and pay the quarterly payments than to push off taxes to worry about another time and wind up in a more serious financial situation.
As a self-employed individual, you’ll have some options for your business and how you want to be recognized. There are tax benefits to certain tax structures such as S-corporations or Limited Liability Corporations (LLCs), but, regardless you’ll be paying more for taxes now than you did previously as you’re faced with the self-employment tax. Previously your employer paid a portion of your taxes, but it’s all on you now. If you elect to form a corporation or LLC, you’ll also need to follow the quarterly requirements for those entities both at the state and federal level. An accountant can be crucial help to be sure you’ve hit every detail on the myriad of forms required each year.
Even if you’re going sole-proprietor, you’ll need to set aside money to pay your extra taxes at the end of the year or make quarterly payments to reduce the burden over time. There are quite a few deductions you can take as an entrepreneur as well that you’ll want to research ahead of time to stay in the letter of the law.
Mistake #4 – You fail to delegate or outsource
Even though it’s your business, you need to let go of certain things. Nobody can do it all, all of the time. Let professionals help you take care of the detailed work that you’re not experienced with or that isn’t a lucrative or productive use your time. For example, there are advantages to learning the tax codes that relate to your business, but it might be more advantageous to find an accountant who specializes in your industry and let them worry about the details with you checking over things periodically.
The same can be true for the menial work associated with business. A bookkeeper can keep track of receipts and expenses. A freelancer can help design the company website and then help to make your site visible in the search engines to increase business. It can be hard to let go of the details, but letting in trained professionals to help can free you up to run the whole enterprise more efficiently and with greater profitability.
Mistake #5 – You didn’t plan for the long term
It’s critical to work small in your first few steps of the business to get off the ground and make your time productive and hopefully profitable. But once you’re out of the breadlines, you need to also start taking bigger steps to prepare for what’s next. It’s never enough to keep doing the same thing over time. Your business must always improve and you’ll need to have long-range plans to help move your company from one place to another successfully. Making money in the short term doesn’t always translate to long-term success. Be sure you’re always looking forward with clear, realistic eyes – not a vision clouded by hope and vague speculation.