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Many entrepreneurs dream of starting their own business for a very long time. They plan and save their money for years and finally make it happen. Then, all too quickly, their small business goes under, and they are left wondering where it all went wrong.
Here are the most common mistakes that will quickly put you out of business and how to avoid each of them.
1. Not managing your cash. Every company goes out of business for exactly the same reason: They run out of cash. Most entrepreneurs mistakenly think that building a business is about growing sales or profit. It's really about monitoring and ultimately increasing the cash retained by your company.
How to avoid this mistake: Learn to read your cash flow statement monthly and find out the sources and uses of cash in your business. At a minimum, review a reconciled bank statement to see if your company has more or less cash at the end of each month.
2. Breaking promises or lying to customers, vendors or employees. Many startup business owners make promises they can't keep. Mistakes will happen, but for some reason, entrepreneurs can repeatedly commit to product features, delivery or service levels that are unrealistic or unprofitable.
How to avoid this mistake: Go to great lengths to always tell the truth regardless of how painful it may be at the time. Being open with all the people you work with will build loyalty and trust.
3. Implementing poor computer infrastructure security. Small businesses are targets of cyber criminals since they traditionally have less resources to protect their company. According to Monica Hamilton at McAfee, more than 75 percent of data breaches target small businesses, and it's estimated that 60 percent of these companies go out of business within six months of an attack.
How to avoid this mistake: Make an investment in protecting your company by using security solutions like antivirus software on all company computers, as well as on the devices employees bring with them to use at work. BYOD, or "bring your own device," is increasingly common in small companies, where employees use their own personal devices for work purposes. This can leave your business wide open to attackers. Use services like Sitelock to protect your company website from cyber attacks.
4. Setting no human resource policies. A small business can easily get stung by not implementing HR policies as the company grows. Employees and managers can all too easily run afoul of employee laws that prevent discrimination, sexual harassment and many other offenses from happening in the workplace. You need to protect yourself, and your employees.
How to avoid this mistake: Create a handbook and policies soon after hiring the first employee. There are many cloud based solutions that can almost do it for you. As the company grows, seek shared outside professional HR help to shape your policies.
5. Not focusing on what the customer wants. A company can't sell whatever it wants and survive; it has to sell what the customer wants or needs. As the market shifts and competitors appear, there's a good chance this will change over time.
How to avoid this mistake: You need to be ready to adapt to a changing market. Continue to focus your products and services on your customer, and target those people who can pay for what you're selling. Always ask current and new prospects what they need and will pay for.
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