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5 Traps to Avoid When Starting Your Business

BYTRADEBYTRADE subscriber Posts: 63 Bronze Level Member
edited June 2011 in Business Planning
While economists continue to debate whether we're truly rising out of the recession or entering into a double-dip, one thing is clear: The employment sector is still in a slump. The strongest job growth seems to be in the small business sector, which has accounted for 65% (or 9.8 million) of the net new private sector jobs created in the US between 1993 and 2009, according to the Small Business Administration. The small business sector has actually seen a surge in activity: Research from the Kauffman Foundation indicates that the number of American businesses created in 2009 marked a 14-year high, surpassing the number of businesses created during the 1999 and 2000 high-tech boom.
If you're thinking about starting or joining a small business in this economy, here are traps to avoid:
CNNMoney.com cites undercapitalization as the No. 1 reason businesses fail. New owners underestimate the amount of money they'll need to get started, or they overspend on expensive equipment and offices and blow through their budgets too quickly. They also might not take into account how long it takes to get cash flow started.
Joanna Krotz, co-author of the Microsoft Small Business Kit, points out that customers don't always pay promptly, and businesses need to account for this. She recommends adding 50 percent to the amount of money you think you'll need to start your business. And be conservative with your budget until you're sure your cash flow is stable. For example, consider starting with a small office and used furniture and upgrade later.
Lack of Research
Startup Professionals founder Martin Zwilling wrote in Forbes magazine that entrepreneurs sometimes believe that because they're in love with an idea, everyone else will love it too. Even if you build a better mousetrap, you should make sure the world is interested. Market research and a thorough evaluation of your competition are crucial parts of your business plan.
Selling Too Cheap
Undercutting the competition may sound like a good strategy, but it's not if you end up selling your product or service for less than it costs you to produce. Krotz, recommends you consider not only your wholesale costs, but also overhead and the profit margin you need to live on when you're pricing products or services.
Hiring the Wrong Help
Keeping your business in the family can pay off if your family members have the skills and drive to make the business a success. But choosing cousin Lenny to do your bookkeeping because he needs the job and once took an accounting course could cost you more than hiring a qualified accountant if Lenny messes up the books. Likewise, if all you can afford is unskilled labor, you might be better off doing the work yourself until you can afford someone with experience.
Burning Out
Starting a business requires a big commitment of time and resources. Failing to take time for your family and recharge yourself can lead to hurt feelings, damaged relationships and even debilitated health. Setting aside an hour a few times a week to exercise, making regular dates with your spouse and spending time with your children won't harm your business and might help you return to work with more energy and renewed enthusiasm.
Fortunately, more new businesses succeed than fail. According to the Census Bureau, nearly 7 in 10 new small businesses survive at least two years. What's most important isn't whether you succeed or fail in your intended milestones, but rather that you assess and learn from your actions along the way so that no mistake


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