Missteps to avoid when starting a business

1. Charging undervalued rates

Setting prices below competitors to gain a piece of market share will likely eventually backfire. Tight profit margins can put you in the red quickly if production or operational costs increase. If you’ve already undervalued your products or services, drastically increasing your prices later won’t make your clients happy.

Instead, develop a plan to attract clients willing to pay a fair rate. Be sure to consider potential price negotiations, if that’s the norm for your product or service.

2. Believing every customer is a potential customer

The more defined your target audience is, the greater your ability to address and cater to their specific needs and wants. Let’s take a restaurant, for example. Defining your ideal customer as anyone within a 10-mile radius is likely too broad. Narrow your focus to include a more defined audience that your restaurant is well suited to, from young families to date nights to nearby high school and college students. Creating smaller sub-audiences within your target audience can uncover more opportunities. If young families are your goal, create a sub-category of families involved in sports. Now you can start to look at related advertising and outreach opportunities with local youth sports organizations.

It doesn’t mean you have to exclude other audiences, and there’s space for some general branding efforts. But having a primary target audience allows you to focus your efforts and advertising.

Bottom line: perform basic market research before opening your business.

3. Failing to set a realistic business budget

Just like a household budget keeps you on track in reaching your personal financial goals, a realistic business budget is necessary to achieve success. Without a way to track income and expenses, you’ll likely overspend, reinvest too little, and be out of business within a short time frame.

You can purchase business accounting software or use free budgeting tools to get started.

4. Setting vague goals

Business growth doesn’t happen by accident. If your business can’t adapt to changes in the market, shifts in the economy, or advances in technology, growth may be unnecessarily challenging. Set business goals that are specific, realistic, and measurable. Include both short and long-term goals to stay motivated every step of the way.

5. Hurried planning

You’re likely in a rush to sell your product or service to your first customer. After all, it’s very rewarding to get your doors open for business. But slow down long enough to write a business plan. It’s this very plan that can speed up the time it takes to make your first sale.

Your business plan should include basic information such as:

• Business idea summary
• Description of the problem your product or service will solve
• Ideal customer and how to reach them
• How your product or service differs from the competition
• Source of start-up funds
• Management and staff positions

A written plan can’t guarantee success, but it can go a long way toward reducing the odds of failure. As your business grows and evolves, revise your plan.

Complete and add financial forms to the plan. They can help guide money decisions to ensure they’re tracking to your overall business goals. Both small and large businesses use monthly budgets, balance sheets, and profit and loss statements for this purpose.

6. Establish a good understanding of financial statements

Many individuals starting a business know how to make or sell their product or service but may not be well versed in the financial aspects of running a business. Statistics show that not having good financial acumen is the main reason businesses fail.

The following can help you be prepared to make good financial decisions:

• Take an accounting class or two.
• Develop a partnership with a qualified CPA.
• Talk to other small business owners and ask how they manage their finances.
• If a third party assists in the preparation of your business plan, make sure you understand the plan and are comfortable with the projections and financial aspects included. If it seems too good to be true, it probably is.
• Find an industry publication and/or recent data to understand what’s happening in the industry, including positives and challenges. Industry information can also help you understand if the projections in your plan are realistic. The Bank of Missouri has resources for information on most industries.

Apply these tips when starting your new business to help ensure future success and growth.

The Bank of Missouri is here to support your growth, from checking accounts to loans. We welcome the opportunity to learn more about your business.