5 common mistakes by new small business owners
For years, startups and small business owners have come to us to help them manage their accounts.
Over that time, we’ve learned a lot about the issues that catch people out.
In this post, we’ll look at the 5 most common problems we see day-to-day, and how your small business can avoid them:
- Not preparing or planning
- Not paying attention to paperwork
- Not considering the business structure
- Not separating business from personal finances
- Not asking for help
Common mistake 1: not preparing or planning
Before you start trading, it’s important to get a solid business plan in place. This starts with asking yourself some basic questions about your business:
- Does anyone need your product or service offering?
- Is your business likely to be sustainable?
- What is the value of your product or service?
- How much will others be willing to pay for it?
- How much will it cost for you to deliver the product or service?
- What investment might be needed?
- Will you need to borrow to get started?
- How will you fund your business?
- Will you need external help to deliver the product or service?
- How will you market your business (via a website, social media or other routes)?
We often find that many new startups haven’t thought about these questions in detail. But the better prepared they are, the more likely they are to develop a sustainable, profitable business.
When we talk to our clients, we get them thinking about these and other questions to help give them the best chance to succeed.
Common mistake 2: not paying attention to paperwork
We know that managing your records isn’t the reason you got into business. That’s why there are people like us in the world – to help with the boring tasks while you get on with the interesting stuff.
But whether you get accountancy help or not, you still need to keep good records.
Business owners often make the common mistake of operating their business by looking at their bank account instead of maintaining proper records.
This can mean missing vital financial milestones such as when income reaches the threshold for mandatory VAT registration. Get this sort of thing wrong and you may be fined.
Keeping the right records means you’ll be best placed to pay the right amount of tax at the end of each year, while sidestepping fines and avoiding unnecessary scrutiny from HMRC.
On top of keeping financial paperwork, don’t forget the documentation that’s directly relevant to your products and services. For example, do you have terms and conditions? Are they up to date and compliant with current legislation (such as GDPR and VAT MOSS)?
There are also other related documents to keep up to date, such as refund policies and warranties.
Consider such issues upfront rather than waiting until after the fact. The last thing you want is a customer complaint to make you realise that you’re missing an essential document or process.
Don’t forget the other paperwork-type considerations, such as organising the right type of insurance and securing the protection of any relevant intellectual property. While we don’t specialise in such matters, we’re always able to make referrals to good service providers who can help.
Common mistake 3: not considering the business structure
It’s common to assume that going into business means being either a sole trader or a limited company. But it’s not quite that simple.
In fact, there are 5 possible structures for any business:
- Sole Trader
- Limited Liability Partnership
- Limited Company
- Community Interest Company (social good, not for profit)
Your options depend on whether you’re working solo or in a business with others, but there’s more to it than that.
For example, you need to consider who your customers are. You might need to set up as a limited company in order to work with certain other companies. Consider also who your customers trade with.
Another common mistake in this area happens when new business owners go into business with friends. Have you considered what would happen if your professional or personal relationship were to go wrong? It’s risky to assume that things will never change. They can and they often do, so be prepared.
To set up your business for success, put clear contracts in place and agree on the constitution of your business entity from the outset.
Common mistake 4: not separating business from personal finances
It’s essential to follow the golden rule for expenses: claim only for the expenses that are wholly, exclusively and necessary during the everyday running of your business.
There can be grey areas for expenses that relate to items that are used for business and non-business purposes. The most common examples are smartphones, tablets and laptops.
We’ve written another article that goes into the topic of expenses. Take a look at Startup expenses: what you can and can’t claim for the details.
Common mistake 5: not asking for help
It’s natural to wear lots of hats when you’re getting a new small business or startup off the ground. But there aren’t any medals for doing everything alone, and this approach can sometimes lead to early burnout.
Often, it’s best to hand the tasks that you’re not an expert in, to someone who could get it done faster, better or cheaper than you could do it yourself.
In the case of accounts, you could start by using cloud accounting software such as QuickBooks or Xero. These tools quickly simplify the task of keeping your financial records in order.
If you want further help with managing your money, an accountant could make a difference. Not only would they make sure you pay only what you owe but they would also help you free up more time to do the higher-value work needed to help your business grow.
Let’s sum up
Those were the 5 most common issues we see startups and small businesses struggle with.
If you need a hand avoiding these and other problems so that you can focus on earning more money in your business, get in touch and let’s have a chat.