7 Mistakes Small Business Owners Make

As a small business owner, you have a lot on your plate. From running your business to ensuring that your customers receive the best products or services, it’s easy to let important things fall by the wayside. Not to mention, many small business owners might not have ever started a business before or have formal education in the business realm. Because of this, mistakes are bound to happen. While mistakes are part of learning, some can be costly—or even fatal—to a small business.

According to data from the U.S. Bureau of Labor Statistics, about 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first ten years. To prevent your business from becoming a statistic and to increase your chance of success, it’s vital to be aware of some of the common mistakes small business owners make. That’s why we created this list of seven mistakes that small business owners make, so you can educate yourself and poise your business for growth.

Mistake #1: Not Having a Business Plan

One of the most common mistakes small business owners make is not having a business plan. A business plan is a blueprint for success that outlines your goals, strategies, and objectives. Having a business plan is essential for any business—no matter how big or small—because it serves as a roadmap for the future. Without a plan, you’ll lack direction and guidance, making it difficult to measure progress and make informed decisions.

To avoid this mistake, it’s imperative to create a comprehensive business plan that covers all aspects of your business. Your business plan should include your:

• Products or services you’ll offer
• An evaluation of your competition
• Target market
• Your startup budget and capital needs
• Product/service pricing
• Marketing strategy
• Financial projections

While creating a business plan may seem like a daunting task, rest assured that there are plenty of resources available online to help you with this endeavor. A little effort now will save you from regret later on.

Mistake #2: Not Knowing Your Target Market

Another mistake small business owners make is not knowing their target market. According to The Balance Money, “A target market is defined as a specific group of potential buyers for which a business positions its products and services.” Knowing your target market allows you to focus your efforts on the people most likely to be interested in your products or services.

Without a clear understanding of your target market, you’ll waste time and resources marketing to the wrong people. To avoid this mistake, it’s crucial to take the time to research and understand your target market. But where should you start?

Here are some demographics to consider when gathering data to determine your target buyer or market:

• Age
• Gender
• Occupation
• Income
• Location

Since you likely know the most about your business, sometimes tunnel vision can occur. We recommend meeting with your team and conducting a buyer persona exercise to gain perspective from people who have roles in different parts of your business. This will help you create a marketing strategy tailored to your target market and be more effective in driving sales.

Mistake #3: Not Testing the Market for Your Product or Service

Is your business idea even viable? Just because you have a brilliant idea for a product or service or a deep desire to start a specific business doesn’t mean there is a market for it. During your development process, testing the market for the want or need for your offering(s) is vital to a successful launch. Forbes suggests a five-step process to creatively test the market: 1) Talk to (potential) customers, test it, offer a sample for feedback, test it with marketing (test ads or a Kickstarter campaign), and get personal with your potential customers.

Mistake #4: Not Being Prepared for Taxes

It’s no secret—businesses have to pay taxes. While taxes can be complicated and time-consuming, they’re an essential aspect of running a business. Failing to pay taxes on time or not setting aside money for taxes can lead to hefty fines and even legal problems. According to Bank of America, “One of the biggest surprises for new business owners often comes in April, after the first year of operations. Upon filing a tax return for the business for the first time, they discover that they owe a hefty tax bill. The reason: a failure to pay estimated taxes quarterly for the year before.”

To avoid this predicament as a business owner, be sure to set aside money for quarterly taxes and keep accurate records of your income and expenses. Hiring an accountant or using accounting software to help you manage your taxes is especially helpful. This will ensure that you’re accurately filing your taxes and help you avoid any penalties.

Mistake #5: Failing to Invest in Technology

Technology: It’s part of our everyday life, and it’s not going anywhere anytime soon. Per Forbes, when it comes to your company “Utilizing technology and putting it at the forefront of business plans can enable companies to reduce costs and inefficiencies, boost productivity, enhance workplace experiences, improve the customer journey and accelerate product creation.” Without the right technology, your business may struggle to stay competitive or may even become obsolete.

To get ahead in your business, invest in the right technology. This may include computers, software, and equipment that is essential to the operation of your business. It’s also recommended to stay up to date with the latest technology and trends in your industry. Doing so will help you stay ahead of the competition and provide your target buyer with relevant products and services.

Mistake #6: Not Having the Right People on Your Team

Hiring the right people is essential for any business, but some business owners often make the mistake of not having qualified employees on board or rushing to fill a position instead of waiting for the right person. Having the wrong people on your team can lead to costly mistakes and inefficiencies that can hamper your business’s growth. This mistake can be avoided by hiring the right people for the right positions.

Here are some tips for placing the right people in the best positions for their skillset:

• Schedule multiple interviews with applicants and let several team members be involved to get a variety of opinions on the candidates
• Ask questions or provide an exercise to assess skills and experience
• Provide training and development opportunities

If you’re too busy to focus time and effort on hiring and training employees, then hiring an experienced human resources officer or even outsourcing hiring to recruiters is a smart idea. If you don’t have the budget to hire someone in-house, there are several reputable HR companies that you can outsource for your small business.

Mistake #7: Failing to Protect Yourself and Your Business

Some of the costliest mistakes a business owner can make include not setting up their business correctly with the right entity, failing to obtain the right business insurance, and not protecting their intellectual property. Let’s walk through each mistake.

You may have heard of phrases like limited liability corporation, sole proprietorships, corporations, and so on. These all represent legal business entities with different structures in regard to liability and taxation. It’s important to understand which one best aligns with your business and goals; you can read more here. After you’ve identified the appropriate entity for your business, you have to file legal documents to register it as such. You can also enlist legal and financial professionals for personalized advice. Setting your entity up incorrectly—or not setting one up at all—can put you at risk personally for assuming all the business’s debts, paying higher taxes, or liability for business risks, like someone suing you individually for falling on the company’s property.

This leads us to our next point: Failing to obtain the right insurance for your company can be devasting to your business or your personal finances if your company is sued or something catastrophic happens, like a fire or burglary in your office. Consult with an insurance professional to ensure you have both the right kind of insurance with enough coverage.

Lastly, failing to protect your company’s intellectual property, whether it be creative assets, inventions, or proprietary processes or software, can be very costly. Your work may be eligible for a copyright, patent, or trademark protection, depending on the asset. Don’t let someone reap the benefits without putting in the work or steal your hard work from under you!

Takeaway

Whether you’re building your business or are an established small business owner, knowing how to avoid these seven mistakes is important for the success of your business. The key is educating yourself and your employees so that your business can reach your target market, thrive amongst your competitors, and be profitable year after year.

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References

Bank of America. (February 02, 2023). What every small business owner needs to know about quarterly taxes. https://www.bankofamerica.com/smallbusiness/resources/post/what-every-small-business-owner-needs-to-know-about-quarterly-taxes/

Detweiler, Gerri, & AllBusiness. (September 19, 2019). 5 Creative Ways to Test-Market a New Product. Forbes. https://www.forbes.com/sites/allbusiness/2019/09/29/test-market-new-product-tips/?sh=13be5848ce26

Lilyquist, Mindy. (January 23, 2020). Understanding and Defining a Target Market. The Balance. https://www.thebalancemoney.com/target-market-defined-1794389

Lupenko, Vladimir. (August 23, 2022). Why A Tech-First Strategy Is Key To Success And How To Implement It In Your Business. Forbes. https://www.forbes.com/sites/forbesbusinesscouncil/2022/08/23/why-a-tech-first-strategy-is-key-to-success-and-how-to-implement-it-in-your-business/?sh=6354d9b9780d

U.S. Bureau of Labor Statistics. (n.d.) Table 7. Survival of private sector establishments by opening year. https://www.bls.gov/bdm/us_age_naics_00_table7.txt