Starting up your new business can be exciting and rewarding. There is nothing better than seeing your dream come to fruition and getting the overwhelming feeling of finally being in charge of your own destiny. Be cautious though, there are many complicated steps and situations that will challenge your sanity, financial freedom and knowledge base in ways that you had never dreamed! Too many start ups fail because of these 6 common issues.
Money Problems Many small businesses that fail do so because of lack of cash and a failure to plan for the financial drain a new business makes on your personal finances as well. Many small business failures begin with starting out with simply too little money, others fail because the owner simply was too optimistic about profitability and the timelines involved for it. Without adequate cash flow a new business is stymied with marketing and resources and simple slow sales or a downturn in the market can end the business before it has a chance to even gain momentum. Ensure that you have planned to adequately cover your personal expenses for a minimum of 12 months outside of the start up cash you have allotted for your new endeavor including personally making payments on the business financing in case the start up is not capable of covering them. Poor Marketing New business start-ups often make the error of rushing into going to print on advertisements and marketing materials before doing their due diligence. Print marketing and advertising is an extremely expensive venture to make a costly error on. Make sure to do adequate research on your target market, competition, hours, and pricing....you may find the market you thought you would be selling to are not the ones actually buying! Also make sure to get the website up and running and keep it fresh. A website has the potential to give more return if kept fresh and constantly being updated than print marketing will at a much lower cost. Keeping Work and Home Separate The stress of starting a new business can be overwhelming on relationships. You don't want to miss that call from a potential client because it could mean that you won't have to drag more money from your savings to cover the business, so you interrupt that romantic meal your spouse had planned. It's okay to step away and still keep your focus on your business. Let your voicemail take that call but make a mental note to ensure you call them back as soon as you can. Taking time for family and friends will enable you to adequately handle the stresses your new business will place on your shoulders. Going it Alone Most entrepreneurs is the belief that they can handle all of the start-up’s operations by themselves. It may be a cost-effective way to run the business, but operating the entire business on your own may not be a wise decision or the best use of your time. Many small-business start-ups may not require full-time employees but it's a good idea to have at least two teammates, a lawyer and an accountant, ready to help. With experienced, reliable assistance, you can avoid other common business mistakes. When it is time to hire staff, be careful in your choices. Employees are a crucial component in the success of your business, I like to call them your front line. The employee who does not reflect the values you are trying to achieve can tear down a business much faster than you can build it. You are the Tax Collector, NOT the Tax Man So many start ups forget that they are supposed to collect the sales tax from the customers, then remit it to the government agency. When the time comes to file the sales tax reports, they find that they have used that money to fund the day to day operations of the business. The tax man has some pretty far reaching hands and all too often, a start up and the entrepreneur ends up losing assets to the government for failure to remit or even worse, facing a litany of criminal charges. Starting with a good bookkeeper and proper record keeping your start up off on the right foot. Choosing someone with experience and knowledge that you trust is paramount to business building. Under or Over Pricing Although you may be competing with the big box stores, you will most likely not be able to price like these stores. The nationwide and international companies obtain products at rock-bottom prices because of the sheer quantity of goods they orders and thanks to exclusive supplier contracts. Pricing your goods and services too low can delay the process of turning a profit. Instead of erring in this way, list fair retail prices, and make sure your start-up excels in customer service. Set yourself apart by raising the bar that your competition serves by. Many consumers are trying to keep their money in their local community so make sure your print advertising reflects "Shop Local" and show your support after a few years by supporting local community organizations and events. You also should have a convenient location and hours. As a small business owner, you now feel like you have the control to be successful. Many small businesses fail not because of a bad idea or mismanagement, but rather they get themselves into hot water with Canada Revenue Agency and then do not have the funds or the knowledge to dig their way out. You may be tempted to write off 100% of your vehicle costs or deduct that family vacation under travel costs for your business, but CRA is always watching and analyzing business trends, costs and profitability. Don't expect CRA to ignore the fact that you are living in a $650,000.00 house but only showing $30,000 in annual income. That is you, the small business owner, waving your wings at CRA is begging for an audit. A construction company centered in the Ottawa Valley would be hard pressed to justify a Jamaican holiday for two adults and two children for a week. It's not enough to say "I worked while I was there," just ask the many that have tried. A reversal of a deduction on your income tax forms will almost always trigger an HST audit, which is often more in depth AND more costly and that is because CRA knows if you wrote it off in your business expenses, you probably also deducted the Input Tax Credit from your HST filing as well. So now you ask yourself, how can I stay out of the auditors magnifying glass. The best business practice is to be honest. Don't try and write off your entire basement square footage, when all you use is the 8 x 8 room in the corner. If you only use your car occasionally for business, keep good records including mileage/purpose/people records to justify the expenses you do write off. When in doubt, ask a professional if the expense would survive an audit. Most importantly, keep good records! 7 year cycling out of records is the best practice. When CRA comes calling, you will be ready with proper record keeping and be able to answer all their questions and requests expeditiously. Michelle Gibson, AuthorSpending much of the last 35 years in business accounting and management, I have once again taken the entrepreneurial leap. My focus is on small business, especially start ups and has the direction and tenacity to teach newcomers to the business world how not to make mistakes. Categories |
Michelle GibsonAfter over 30 years in business management roles, I want to help other businesses grow and succeed. If I can keep one small business from making common mistakes, I will have helped them immensely! Archives
October 2021
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