Each year, many new home-based businesses are started; but many also fail. Many newcomers, at first excited by the prospect of working-at-home, soon become disenchanted when they realize that even a home-based business requires tremendous effort and hard work.
We have listed the most common stumbling blocks that businesses fall prey to. Here are some guidelines to help you from falling victim to these pitfalls and survive your first two years in business. These reminders should be kept within easy reach as you operate your business.
1. Under Capitalization. Lack of funds is the number one reason for failure. Many entrepreneurs fail to plan properly, expanding too soon or spending unwisely, and don't get enough money to keep the business going for a certain period of time. A good business plan can help you avoid this.
Invest enough to keep your business growing for three months. Investment in inventory is critical. Take a hard look at your debt. While it may not be as enjoyable as preparing a shopping list, sit down and make a list of all your debts.
- Sell whatever you can.
- Do not rush into expansion.
- Cut expenses across the board. Small reductions all around are easier to handle than depriving your business of an entire budget line, such as advertising.
2. Be realistic about money. If you are weak in financial management, it is best that you hire a professional accountant or bookkeeper, even on a part-time basis. It is important to constantly know where you stand financially. A lot of small business owners run away from accounting. They avoid tasks like figuring out what to charge, keeping records, or sending out invoices; often losing track of how much they are earning -- or should be earning. Hire an accountant to do it for you and put this into your business plan.
However, over-reliance on accountants and letting them run your business is also a big no-no. Avoid the trap of some business owners who make financial decisions without financial knowledge. As much as possible, everyday bookkeeping chores should stay in the hands of the owners, while delegating to accountants some tax reporting and preparation of financial statements. Turning over all bookkeeping duties to an outside source is both expensive and dangerous.
3. Poor management and organization. You will need to decide on the best organizational structure for your business. Learn the advantages and disadvantages of each legal form. You may end up paying taxes on your losses.
Also, do not forget to be generous in allocating time and earnings for yourself. Often, self-employed people are not efficient about using their own time, partly because they think there is no end to it. If you are working in your bathrobe in your bedroom, what's the difference if you call that client now or after lunch. And now that you are home, you can catch all the noonday showings of your favorite drama shows on TV. It is also important to have fun.
4. Miscalculated market potential. Making business presumptions without taking the time to learn your target market is a serious pitfall for any starting entrepreneur. Research your market carefully in order to avoid missing the mark on what product is needed. Label very specifically who your ideal customer will be. Properly determining the market determines the location, the marketing plan and the product mix of the seller.
In addition, avoid basing your business on trends that may soon fade. Research trends very carefully to determine whether the passing fad has the potential to stay.
5. Ineffective Marketing. Study carefully how you will attract and sell to customers. Formulate your advertising and sales philosophy using the most appropriate media, timetable and budget for your promotion efforts.
This is a serious problem on the Web. Some sites have been able to attract huge traffic, but fails to convert this to sales. You can attract six people a day to your site or six million but if they do not buy anything from you, it doesn't matter if a handful or millions came. It is important to devote plenty of energy and expertise to improving your conversion rate -- the number of people who check out the site and then actually buy something. Conversion of visitors to buyers will give you a strong foundation for a successful business.
Remain positive. If you feel as though you are losing control, then you probably will.
Isabel M. Isidro is the co-founder of PowerHomeBiz.com, one of the leading online sources of information for small and home-based businesses. For information on starting a business her Web site.
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