There are currently 28.8 million small businesses in the United States and only two-thirds are expected to survive beyond the 2-year mark. About only half of those survive past the 5-year mark.
The first few years in business are critical to your success. We spoke to several small business owners to find out what mistakes they made during their first few years in business.
Mistake #1: Undercharging for services or products
The most common mistake small business owners make is undercharging for their services. Pricing for profit plays an essential role in the health and success of your business because when you set your prices correctly, you have a big advantage over your competitors. When you set your prices incorrectly, it can be tough to recover or make up for what you lost, giving your competitor an edge. We recently discussed the importance of pricing for businesses of all sizes with pricing expert Ed Kless.
“It’s fascinating to me that, by and large, most people just don’t realize the impact pricing has on their business. They don’t know that pricing is the top driver of profitability for almost every kind of business, including small businesses.”
When developing a pricing structure, it’s important to consider the following things: what is it going to cost to produce your product or service, how much profit margin will you need to add in, what can your target audience afford, what’s your revenue target and what are competitors in your industry charging. Figuring out the right pricing structure is a science. Determining the right the price for your services or products will have a tremendous impact on your businesses success.
Mistake #2: Taking the cheap route
Many new business owners just want to launch their new business without having the right tools in place. When first starting a business it can be tempting to go with the cheapest option. Don’t take the cheap way out. You will end up spending more money investing in the right resources later on that you should have paid for in the first place. Think about the long-term needs of your business. As you scale up your needs will change so make sure the tools you invest in today can help your business five years from now.
Mistake #3: Choosing the wrong business location
Choosing the right location is probably one of the most important decisions you will make when launching a new business. Choosing the wrong location can make or break the success of your company. You need to consider the following things: Is it a high traffic area? What’s the competition like in the area? Will my business be easily accessible to my customer base? Will I have to pay city and county taxes? Do I need a permit to open my business in this location? What’s the talent pool like in the area? The wrong location can affect your cash flow and how fast your business grows.
Mistake #4: A poor understanding of money management
According to the small business administration, 82% of businesses that fail do so because of cash flow problems. Maintaining cash flow is the lifeblood of your business and it is what will keep it alive. Most of the time you’re so focused on the day to day operations of the business that you forget about the accounting basics. Here are seven practical tips for learning how to manage cash flow.
Mistake #5: Choosing the wrong business partner
Research shows that 70 percent of business partnerships ultimately fail. Why? Because they didn’t have the same shared vision or weren’t willing to work together to overcome the obstacles many new business owners face together. Choosing the right business partner is like selecting a life partner. A great business relationship is all about chemistry and balance.
The best advice many small business experts give is that it is extremely important to align yourself with the right business partner. If you aren’t skilled in Accounting 101, hire someone who is. Find the right partner who is skilled in areas that you are not. If you are great at the day to day strategy and sales, find a partner who is savvy at money management.