Budding entrepreneurs are passionate, driven and know a lot about their area of expertise. However, when it comes to actually starting and running a business, they’re often in unfamiliar territory. It’s inevitable they’ll make mistakes, but one great way to avoid common pitfalls and boost the likelihood of success is to learn from the mistakes of others.
Five hundred and one (501) small business executives shared their top mistakes in a 2011 Hiscox Small Business Survey. Entrepreneurs can help get their businesses off to a running start by avoiding these mistakes. The top four mistakes are:
- Underestimating monthly expenses: 32 percent
- Hiring the wrong people: 20 percent
- Not knowing how to market and sell your product: 18 percent
- Not securing enough financing: 18 percent
While it’s impossible to avoid every misstep, education and preparation are key. Still, the executives in the study also admitted that they didn’t know as much as they should about critical issues. Cash flow, human resources, marketing and insurance issues are keys to successfully getting a new business off the ground. If small business owners don’t plan for the essentials of running a business, like getting the right contract in place for employees, or having small business insurance that covers the specific risks of the industry, they can be in for a rough time.
The study, which included executives at companies with 100 or fewer full-time employees, uncovered some major knowledge gaps. More than a third (33 percent) said they didn’t understand enough about the impact of taxes. About a quarter of respondents said they didn’t know enough about financing and credit (26 percent). Nearly a quarter (24 percent) said they didn’t know enough about hiring and firing.
Insurance was another potential stumbling block. While nearly three quarters (72 percent) agreed that their business should have liability insurance from the moment it’s launched, they weren’t always clear on the specifics.
The biggest mistake a small business owner can make when purchasing insurance such as professional liability insurance is not understanding what their policy covers, according to 37 percent of respondents. Not doing research on rates (17 percent) and not buying a policy that’s customized for their industry (16 percent) were other top insurance mistakes.
Avoiding and combating common mistakes is difficult, but possible. Entrepreneurs starting businesses are frequently overwhelmed. But they can position themselves to succeed by following a few essential guidelines, including:
- Do your research. Entrepreneurs need to understand their needs to ensure they get the right insurance coverage at a competitive price. The policy should include coverage for industry-specific risks, such as data loss or errors and omissions. Advisors including tax and accounting professionals can help with identifying and estimating costs and setting up a system for paying taxes and other expenses.
- Know the industry and the niche the business fills. This is the first step towards successful marketing. If small business owners can’t define their target market and marketplace differentiators, they’re at a huge disadvantage. There are plenty of online resources, as well as professional marketing and public relations firms, to help define a business’s message and brand and get the word out.
- Having the right people in place can make or break a business. To increase the chances that hires are successful, it’s important to look for people who not only have the right skill set but who are also a good cultural fit. Make sure they understand the demands of the job and that any contract clearly spells out expectations, grounds for termination and confidentiality requirements. Equally important, be prepared if someone doesn’t work out. While legal advice may not always be necessary, be sensitive to situations where it can help avoid a bigger problem, such as a lawsuit, down the road.
Starting a business can be exhilarating but it is also fraught with pitfalls. There are myriad details and requirements and creating a solid foundation is an essential step in building a successful business. By being prepared and learning from the mistakes (and successes) of others, entrepreneurs can make sure they realize their dream of owning a successful business.
Kevin Kerridge is the Director for Hiscox Small Business Insurance. Mr. Kerridge previously led Hiscox’s small business insurance coverage in the UK, which covered 38,000 small businesses in 2010.
Learn more about insurance for small professional services businesses online at hiscoxusa.com or over the phone at 888-202-3007.
This article does not offer legal, tax, or insurance advice related to the needs of any specific, individual business. Please consult your professional advisor for business advice.