All entrepreneurs will make mistakes.
But it’s how you recover, pick yourself up and very importantly, learn from those mistakes that matters.
I set up my own law firm in 2009 and had no idea how successful I would be, but it was something I had to try. Now, as I support other entrepreneurs and start-up companies through their journeys, I use my experience to help guide them past or through the many pitfalls that lie ahead.
These are the top 10 biggest mistakes I’ve witnessed and likely made myself:
1. Running Before You Can Walk
Large contracts, posh offices and volume of staff are what many owners aspire to have, but taking it on too early can be disastrous.
One client I had, took on a bank contract and extra staff to service this amazing venture, but he made no contingency plan. The completion was pushed back six months which meant he had to fund the staff and office space for an extra six months without being paid. Sadly, he couldn’t and the business folded.
Carefully plan the next step up and ensure you have a plan b if things go wrong.
2. Thinking You Can Do It All
When you start a business, many people handle over 3-5 people’s jobs until they can afford to recruit. However, I have also seen owners handle the legal work, accounts and specialist sector work that they are not trained in which made scaling up that much harder.
Good advisors and recognising when to let the experts in is paramount to success.
3. Unrealistic Expectations
Nothing will ever go perfectly to plan or conclude on the deadlines set. So be realistic, set achievable goals for you and your team otherwise it will seem that you are always swimming against the tide.
4. Choosing the Wrong Co-Founders
Sometimes you go where the money is or you have an expert in another field or they are your best friend. Long-term though, are your business owners heading in the same direction as you? Whoever you go into business with, ensure you have a co-founder’s agreement in place to protect you. I have seen so many entrepreneurs make this mistake and it can be costly!
What happens if someone offers to buy the business or you need an investor? What happens if you want to leave or your partner isn’t pulling their weight?
Talking early on avoids disaster later if you have a disagreement.
5. Not Having Sufficient Cash Flow
I have seen cash flow problems cripple businesses and sometimes sink them. Whatever you think you need, add an extra 25% to that as a contingency.
Tax bills, office repairs or even legal issues, can occur when you least expect it so have some cash in the coffers ready. At the same time do not over borrow and over extend yourself.
Motivate and cultivate an environment people want to work, as regular recruitment drives cost time and money.
Good staff are the backbone of any business and reflect your reputation and goodwill.
At the same time have tight contracts and restrictions in place to avoid employees knowing trade secrets which they use to compete against you.
7. Choosing the Right Customers
Often a business simply takes clients without question excited to build the business. However, extending credit, servicing contracts with only part payment etc. can be risky unless you know your client can pay you. Carry out some due diligence and watch for warning signs of them being unable to pay you.
8. All About You
If you come to sell, step away a little or seek investment, you can only do that if the business stands on its own legs without you. No one wants to buy a brand / company whose goodwill and reputation will be lost if you walk out the door. IP, staff and management is all essential as a business that can operate without you there
9. Over or under Committing
If you are investing in several businesses can you honestly offer them the time they need? Alternatively, if you are focused on only one business, don’t over commit and micro manage founders or key staff members as they lose motivation. Getting the balance is difficult but essential.
10. Not Knowing Your End Game
Are you going to organically grow, sell, take on investors, expand overseas or run the business to pass on to your family? Planning your exit and making this clear to others is absolutely key to achieving this aim otherwise no one knows the ultimate goal.
It’s not easy setting up, running or investing in a business unless you manage your expectations and cash well and have good advice and a clear agenda.
About the author:
Karen Holden is the founder of A City Law Firm.