Given that more start-up businesses fail than succeed, we have compiled a list of some of the most common mistakes made by business owners.
Running out of Cash
This is the most common reason why companies fail. You should ensure from day one that you keep on top of your outstanding invoices. Agree payment terms upfront with your customers, make sure you submit invoices on time, and send them to a designated contact in the accounts department. If payments become late, chase them up efficiently, and don’t be afraid of hiring a ‘debt management’ service if you suffer from persistent late payment issues.
Have you chosen the right type of business structure to work under? The limited company route is the most tax efficient in most situations, although company directors have more obligations to meet than the self employed. In some industries, such as IT contracting, clients will only do business with you if you are operating via a limited company (or if you are an umbrella company employee).
A good accountant can save you time, money and stress. There is no golden rule to choosing the perfect accountant for your particular business, however there are some important factors to consider when choosing an accountancy firm.
If you use a reputable accountant, and appreciate that the company’s directors are ultimately responsible for meeting the company’s financial and statutory deadlines, then you really shouldn’t have any excuses for submitting forms or paying your taxes late. You could face heavy HMRC penalties for missing your tax deadlines, and even prosecution in extreme cases if you fail to submit your company Annual Return to Companies House on time.
The Right People
A company will only be successful if it employs the right people. Most small limited companies are driven forward by their directors, but often the unsung heroes are the people who run the office, keep on top of the administration, and provide customer support. Treat your employees well, reward them meeting their targets, and consider providing incentives (such as sharing the profits of the business) so that your staff have a stake in the company’s success.
Before starting up your new company, have you taken time to research your market, to ensure that a profitable business opportunity exists? How many competitors are there in your space, and what is your unique selling point (USP)? How will you differentiate yourself from other firms in the market?
No Business Plan
Following on from the previous points, many companies do not have a business plan. You should always have a solid plan in mind when you start a new business, even if you do not create a traditional ‘business plan’. A business plan is a fluid document – all companies evolve as they grow, reacting to situations as they happen, and to changes in the marketplace. At worst, a business plan is a useful document to measure your success against.
Most small businesses are initially financed by their directors – from personal funds, or with the help of friends or family. In the future, if you require further funding, you will need to provide potential investors, or banks with credible reasons why they should lend you money. Once again, you will not be able to acquire funds from financial organisations or angel investors unless you have a realistic business plan in place, and a viable business model.
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