The five things every first-time business owner needs to know before getting started
- The Small Business Administration offers tools to help in creating business plans and estimating start-up costs.
- Questions new entrepreneurs need to be prepared to answer on their own include: how to compete on price, quality or service, and how to reach potential customers.
Being an entrepreneur is a dream to which many people aspire, and a worthwhile financial goal. Still, many first-time business owners, and even experienced pros, can sabotage their best efforts through typical mistakes. When you're ready to roll-up your sleeves and start your own business, keep your eyes open for these four issues. Though they might sound simple, these have been make-or-break issues for the fortunes of countless aspiring entrepreneurs.
1. Do you have a formal business plan? If not, you need one.
Not creating a business plan is perhaps one of the most common mistakes, and it's a troubling one, because business plans can help you identify issues with your idea, and also help market to potential investors or other sources of funding.
Before you start on a new venture, draft a simple business plan that identifies your proposed product or service, the costs involved, your funding needs, your competitors, potential customers and market opportunity. Also detail realistic challenges your business can expect to face.
The Small Business Administration (SBA) offers step-by-step simple business plan creation guides.
2. Don't assume being frugal is the right way to spend.
With a business plan in hand, you'll have a better sense of your funding needs, which will help you avoid two classic traps: over- or underspending. Some entrepreneurs misjudge costs, and end up spending more than they budgeted, while others spend too little to give their business a realistic chance, in the mistaken belief that being careful and frugal is always the right way to proceed.
Do your best to estimate actual costs of funding your venture through launch and the first year. The SBA offers a great start-up costs tool that helps estimate new business funding needs. Then, find ways to secure the capital you'll need.
More from Invest in You:
Op-Ed: It's never too early to save for that emergnecy
Demand for travel insurance spikes amid virus outbreak
Me & the Bees Lemonade founder started her empire at 4 years old. Her motto: 'Dream like a kid'
3. Identify the right partners.
The same issue of too much or too little is present when considering business partners. In many cases, you can't launch a venture alone — you'll need partners or investors for funding and know-how. But you can overdo it, by bringing on too many people, diluting your profit, and confusing your strategy. Your business plan will hopefully have considered this issue, but think further about who should really be involved, and what impact it'll have on your venture.
4. Get to know your customer before you start.
Do you really know your customer, and market? Do you know whether they have a desire or need for your product or service, or whether your proposed pricing makes sense? Do you intend on competing on price, quality, service, or all of the above?
Get to know your customers and market. Many businesses stumble because they fail to understand their target market. And when you're ready to expand, don't assume new customers in different areas will have the same tastes and priorities — get to know them, too.
5. Don't skimp on marketing.
Too many entrepreneurs have good products or services, but do a lousy job of marketing. If you know your customer and market, this should be less of an issue. You'll know what blogs they read, and where they hang out in real life and on social media. You can market to them based on their habits and lifestyle. Don't assume traditional advertising is dead, either. Depending on your business, billboards or radio ads might make sense, and overreliance on social media might backfire.
Whatever you do, you must market. If you're shy, don't understand marketing well, or don't see its value, hire someone who can help.
Entrepreneurship can be the adventure of a lifetime, but like any adventure, it can also be a challenge. Preparing yourself for the common mistakes many business owners make will make your path to success easier.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
'America’s Got Talent' winner to use windfall to wipe out college debt
How much you will get in Social Security if you make $40,000 and wait until 70 to take your benefits
Josh Brown says money can buy happiness if you invest right
This woman is working 5 jobs to stay afloat after being laid off. It’s still not enough
Why day trading isn't the best strategy for first-time investors, according to a financial planner