What are the pitfalls to avoid when you are starting a business and why should you care about this?

The Federation of Small Business states the following for SMEs and the economy:

  • Small businesses accounted for 99.3% of all private sector businesses at the start of 2016 and 99.9% were small or medium-sized (SMEs);

  • Total employment in SMEs was 15.7 million; 60% of all private sector employment in the UK;

  • The combined annual turnover of SMEs was £1.8 trillion, 47% of all private sector turnover in the UK.

Starting a business isn’t for everyone but if you are brave enough, here are a few things you need to consider:

Knowing too little. Starting a business requires you to be a well-rounded individual for example - in the morning you may be training a new employee and by lunchtime you could be with your bank manager negotiating additional capital for your business. By the afternoon you could be video calling a supplier to discuss stock and in the evening you may be emailing a customer regarding a complaint. I think you get the picture? Starting a business isn’t for the faint hearted and requires a strong mind set.

The best time to start. Starting a business will take longer than you think especially if it is something you haven’t done before. Planning, acquiring funding and searching for premises all takes time. If you start before you are ready you will disappoint your customers and most importantly yourself. Planning is important; it is good to outline the tasks ahead and to set realistic time scales to complete them. Don’t forget to include all this information in your business plan.

Working capital. Most new businesses focus on acquiring large items such as computers, office furniture and vehicles, known as working capital. Usually businesses forget to consider recurring and invisible items such as insurance, stock and money owned by customers. A customer who owes you money will need to be chased and additional finance will have to be sought to cover the shortfall until they pay up, which will affect your working capital cash-flow.

Location. When starting a business there are a lot of factors to consider, but premises should be at the top of the list. Working from home or finding the right location and premises is key for any business. Do not take on premises because the rent is cheap, there’s usually a reason for this. It could be due to poor transport links, no parking, or a poor footfall of customers. The list is endless. These factors will make it hard for customers and suppliers to visit your business which will have an impact on your business.

Unique Selling Proposition (USP). To stand any change of success in business you must pass one important test. Do you have a strong USP? Having a strong USP will allow you to stand out from the crowd and to have a competitive edge from your competitors. Your business should have a clear unbeatable competitive advantage if your product or service is to be desirable to the buyer.

Avoiding the pitfalls will allow you to spend time on turning your business into a success. The key is being aware of the pitfalls and consistently working to make smart and well-informed decisions in your business. If you can achieve that and remain focused, you will minimise any risks.

You're on our blog and updates site, which is hosted by elXtr, a leading digital hub powered by the award-winning lawyers and business advisors at LHS Solicitors LLP