Running a Small Business? Avoid these Common Mistakes

To help ensure that you don’t make some of the more common mistakes made by other business owners, we’ve put together a short list of what you need to watch out for, along with how to avoid them.

Failing to conduct research

When running a business, however small, market research is essential – you need to establish if there is a gap in the market for your company to be profitable.

Keeping an eye on competitors is a necessary evil, as recognising what businesses similar to yours are doing will enable you to emphasise your USP (Unique Selling Point) and differentiate your company from the others.

Producing no business plan

Even if a traditional ‘business plan’ is not appropriate in your case, you must put time into thinking about which steps you will take to maximise your profit.

Thinking about different eventualities can be useful, and you may want to make two plans initially – one to use if things are going well (how would you deal with more customers than planned for?), and one if they aren’t (which steps would you take to inject some more capital if needed?).

A business plan can also be incredibly useful at the end of any particular period to track how successful you have been.

Leaving your company unable to acquire funding

Initially, using personal or family and friend cash injections is common, but in the future more capital may be required.

If this is the case, potential outside investors or banks will need proof that your company is worth investing in or providing equity funding to.

Business plans and models will be essential to attract financial organisations or angel investors.

Running out of cash

Especially in the first few years of trading, this is a common problem within small businesses. Although it may be tempting to offer payment plans to entice customers initially, the best ways to avoid shortfalls are:

• Agree payment terms upfront
• Keep on top of outstanding invoices
• Delegate someone with the task of keeping them organised efficiently

‘Debt management’ services may be the most cost effective way of chasing up payments that are consistently late.

Taking bad advice

Hiring an accountant is likely to be the best way of reducing time-consuming stress, especially keeping in mind that time is money.

The majority of Limited Companies use accountants, and sole traders also benefit from using this service as a way of concentrating their energy into the business. However…

Taking the initiative to check that the yearly accounts have been filed on time by searching for your company on the Companies House website is hugely beneficial, as fines will accrue with the possibility of legal action being taken, and late submissions are recorded as public information.

 

Hiring the wrong people

Those who you employ to keep the business running by completing admin tasks and provide customer support, for example, are often underrated.

Putting together a strong team that you trust to carry your business can make all the difference between success and failure.

A little motivation also goes a long way: rewarding targets that have been met and offering incentives are examples of strategies to ensure that the team wants your business to succeed (and will work hard to achieve this success).

Using the wrong business structure

Perhaps the simplest paths towards setting up a business are to become a sole trader or one half of a partnership. Sole traders have less responsibilities to undertake than Limited Company owners, but there are some advantages in taking on these obligations.

Limited Companies tend to be the most tax efficient, and in some industries clients are unlikely to consider a Sole Trader as a viable business.

Additionally, Limited Companies have limited liability: the directors are not personally liable for any debts accrued, providing that they are dealt with in the correct manner.

Not meeting deadlines

The director of any company is ultimately responsible for their company’s statutory and financial deadlines being met, irrespective of whom they have delegated the task of paying taxes and submitting forms to.

These are the consequences of failing to keep up with deadlines:

•    Late submission of annual return to Companies House may accumulate fines of up to £5000.
•    The company may also be struck off the register: company owned assets become property of the Crown and the director becomes personally liable for the company.
•    Missed tax deadlines will accrue HRMC fines with the possibility of prosecution.

Taking steps to avoid these penalties will relieve you from stress and ensure that you avoid personal liability.

If you are all too familiar with any of the above mistakes, give us a call – we can probably help.