In: Finance
What are the pitfalls that a new (startup) business must be aware of to avoid failure. Explain each pitfall
The most common pitfalls of a startup and the ways to get rid of them can be explained as follows:
Not using a contract- Before one starts working, one must put together the terms of the agreement and get it on paper. Contracts ensure that the scope of the work is defined well and that one has legal documentation if any issues arise when it is time for payment.
Not having fast business systems to your disposal- Using smart business systems to define and control the workflow is vital to running a uninterrupted and profitable business. A system breaks down tasks into a step-by-step process with checkpoints to ensure quality and consistency from every employee, including the owner. Failing to optimize the business with a system equals wasted time and effort. One must reevaluate the system frequently to find weaknesses and increase efficiency.
Not clearly defining the payment terms. Owning a company has its drawbacks and payment schedules are one of them at the beginning. One has to be prepared to wait for payment, even if he is an independent contractor in business by himself. One must know his contract -- and know what the terms mean and how soon he can collect. In short one must be aware of the concept of money recognition as said in accounting, the profits must be entered into the book of accounts only after payments are made to you.
Not covering the legal bases- It is always advisable to hire an attorney to do your legal work and be safeguarded against legal complications.
Partaking in joint ventures without an agreement- When teaming up with another business for a joint venture one must define roles, outlay and expectations to avoid issues down the line. In addition to making the venture run smoothly, it will preserve the business relationship even if the project bombs.
Not defining your banking boundaries- it is advisable to use a separate bank account and accounting software. As tempting as it is to simplify the books by using the personal account or an existing account set up for another business, it's a much better practice to keep everything separated.
Not being prepared for new tax types- Taxes can be a real nightmare for a small business that can't afford an accountant. However, there are may tools on the market to help prepare and track expenses.