The Biggest Mistakes Entrepreneurs Make in Their First Five Years
Small business owners are often filled with excitement and optimism in the beginning stages of their entrepreneurial journey (as they should be!) However, when they are excited about starting something new, they often overlook the potential risks that come with launching a business. Sometimes, these risks could ultimately lead to a downfall from which they may never fully recover.
Like any new journey, starting a business should be handled with cautious optimism. It is important to assess the risks and familiarize yourself with the gist of entrepreneurship.
Here are just a few examples of the biggest mistakes entrepreneurs often make in their first five years of starting a business.
Underestimating Their Financial Needs
When initially starting their business, some entrepreneurs fail to evaluate the reality of their financial situation. They may only budget for obvious expenses, such as rent and inventory, while neglecting the less obvious ones, including permits and legal fees. Other entrepreneurs may also assume that they will generate revenue as soon as they open their doors for business. However, financial growth can take weeks or even months before it is sufficient to cover a business. Underestimating financial needs can quickly add to mountains of debt that can harm a business.
Cash Flow Issues
According to research, 82% of businesses that fail do so because of cash flow issues. Some entrepreneurs fail to take cash flow issues into account when starting their business. The cost of rent, payroll, utilities, and other resources needed to run a business can quickly drain funds if revenue isn’t adding up. Poor budget forecasting may lead to overspending and cash shortages. Some entrepreneurs even expand their brand so rapidly that the revenue does not even have the time to add up and cover large upfront investments.
Hiring Close Friends
Just because entrepreneurs connect with their friends on a personal level, inviting them to join them in business may be a grave mistake. Blurring personal and professional boundaries not only causes discomfort and awkwardness in the friendship but could harm a business. Holding friends to the same performance standards as other employees could be unrealistic. You may not hold them accountable the way you would for different employees. You may also overlook candidates who are more qualified for the role and limit your business’s potential.
Trying to Do It All
When entrepreneurs first start, they often overestimate how much they can take on all at once. They may want to wear every hat in the business, taking on the roles of salesperson, accountant, HR manager, and marketer. Many of them fail to realize that stretching themselves thin prevents the strategic growth of their business. For their business to be successful, entrepreneurs should never underestimate the value of delegating and building a strong team.
