Usually at certain events that particularly catered to real estate and small businesses I often will hear “The entrepreneur bug biting a few.” By this, I am referring to a select few individuals who wake up one day and decide to start a small business without a business plan or lack thereof any plan whatsoever. Now being an entrepreneur and small business owner can significantly impact local economies by creating jobs, empowering young adults at learning other crafts, help a community and much more. The problem that exists is when someone ventures in the world of the private sector and think of owning a small business is a hobby, until reality hits then the owner realizes that owning and growing a small business requires strategic planning, specific knowledge and certain skills. This small expose is not about dissuading the reader from pursuing his/her entrepreneurial venture of owning a small business of any kind; it is simply to share 4 big pitfalls small business owners fall into and how to circumvent them.
Pitfall Number 1: No Business Plan
Having consulted small businesses in the past and arranged line of credit or owner-occupied financing there is one thing I noticed over the years. Many small business owners lack a solid business plan. Having a plan that specifies the business short-term and long term goals is instrumental for its success. It also helps build trust from banks and lenders that will provide business credit cards, financing either for equipment or expansion once the business start to grow. The business plan should be detailed enough to explain about its mission, goals, market share, competitors, cash flow projections, growth analysis, certain metrics, ratios, experience of the owner and the team. And most importantly, it must have an exit strategy. As a word of caution: do not approach a bank or lender about funding for a small business without a plan nor an exit strategy, the likelihood of obtaining a loan will be extremely small.
Pitfall Number 2: Business Obsession
Once upon a time there was a client of mine who started a pet (dog grooming and walking) business in a mixed use property I help placed financing on. The market was in high demand for the service. She was obsessed with the different type of dogs, their trainings and well-being. That was superb. Unfortunately there are certain tasks that were neglected, and due to that reason, the cash flow that was projected once the business had stabilized to normalcy was not robust. That was purely attributed with the obsession with the pets and not doing enough work in areas such as: bookkeeping to understand fully the income and expenses, marketing, advertising to gain more customers, selling and tracking efficiently. Growing a small business will require more time investment the first couple of years and personal sacrifices. It is critical to pay attention to minor details, because as much as there is an obsession with the products, if .50 cents is missing each month on 100 products that cost $30 each that pet owners are buying, and there is no proper bookkeeping or tracking, $1,500 will be missing at the end of the fiscal year. The important point here is to be more obsessed about the growth of the business and its overall operation, not just the products.
Pitfall Number 3: Avalanche of Implementation
The world of some entrepreneurs and small business owners tend to become an avalanche of madness from the early stages of operation. This occurs because of too many unnecessary activities, lack of planning, and focus. Regrettably, this madness tends to continue while the business stabilizes after a couple of years due to lack of focus and wanting to do it all. The key to avoid this huge mistake that may eventually crumble business operation is to (i) know and understand your strengths and weaknesses as an owner and (ii) having a solid SWOT analysis for the business as well. Knowing your strengths will make it easier to delegate specific tasks to other parties within the companies or other third-party vendors and suppliers. It is always important to work on weaknesses to become a well –rounded small business, nonetheless as a business owner it is vital to delegate where you are weak and let other party execute their jobs. SWOT stands for: strengths, weaknesses, opportunities and threats. Basically, crafting a SWOT for the business not only will keep overall performance on track, mitigate future macroeconomic risks, it will also help with strategic decision making.
Ask any ultra-successful small business owner, how did you get to achieve so much? The answer will most likely sound something similar to this, “Well, I had a plan going in, know what I wanted to do, there was a market for it, I worked really hard, and surrounded myself with bright individuals who believed in my vision for the company and cared about their jobs.” The secret ingredients are “team player” and “strong team environment.” Imagine owning a small business where you have to do 12 kinds of jobs efficiently that could have been executed by 12 other experts. For instance, the owner may be so consumed with his/her experiences, expertise and prior success and decided to be the accountant, the bookkeeper, the marketer, the advertiser, the business relationship manager, the lawyer, the sales representative, the customer support, and so on and so forth. As a commander in chief in a war zone, the goal is to strategize battle plans not to be behind a machine gun as a gunner. Clearly, some small businesses start with extremely low start-up capital and the owners are forced to take on many of those roles and wear many hats. This is necessary to propel the plan forward. Nevertheless, once there is some form of traction it is always more efficient to be surrounded by a competent team to help grow the business.
Ultimately, small businesses are the cornerstone of local economies and even many counties in a state. Some of these businesses will grow into million and billion dollar corporation (i.e. Facebook, twitter, Agorafy, Honest Buildings, Airbnb, Pizzeria, Blink Fitness, etc.) Some will remain private and others will transcend growth and venture into IPO, initial public offering launch. As a result, it is critical that from the early stages a small business owner, entrepreneur, obeys the law of solid business principles, otherwise pay the consequences of succumbing to the 4 big pitfalls that are must be avoided.
By: Ibsen Alexandre
The opinions expressed herein are those of the author(s) and do not reflect the view of a particular firm, its clients, any respective affiliates nor any Media Platform. This article is for educational general purposes only and is not intended to be and should not be taken as solicitation to lend.