Avoid the Pitfalls of New Business Ownership

Becoming a business owner can be an invigorating and satisfying experience. Yet, starting a business can be relatively problematic for the inexperienced – and in this lifestyle what you don’t know can be catastrophic. The majority of small businesses fail within the first five years, due to easily avoidable mistakes. If you’re planning to start a new business, particularly one that is service based, here are some pointers to help you circumvent some of the most typical startup hazards.

1. Create Dexterous Business Systems

Utilizing business systems to delineate and manage your workflow is essential to running a proficient and profitable business. A system breaks down responsibilities into a step-by-step process with checkpoints to ensure quality and consistency from every employee, including yourself. Failing to optimize your business with a system will equate to misused time and effort. Frequently reassess the system that your business chooses to use in order to find weaknesses and increase efficiency.

2. Employ Contracts

Anyone who tells you that you don’t require a contract is incorrect. Prior to you putting in a minute of work, negotiate the terms, agreements and deliverables all detailed in writing. Contracts ensure that the work agreed upon is not subjected to scope creeping. Scope creeping is where the client’s expectations exceed the limit of the budget and or work agreed upon. With the contract detailing the scope of work to be completed, you will have legal documentation if any issues arise when it is time for payment.

3. Have NDAs Handy

Be sure you understand various types of non-disclosure agreements (NDA) and intellectual property agreements (IPA) so that you and your business are protected. Non-disclosure agreements are a necessity for employees who will be privy to the inner workings of your business and who may have the opportunity to interact directly with clients and intellectual property. Consider a one-way non-disclosure agreement if you are just beginning, and as your business becomes more mature you can phase into using a multi-party agreement.

4. Understand your Payment Terms

Owning your own company has its drawbacks and when you are just starting out, payment schedules are one of them. Be prepared to wait for payment, even if you’re an independent contractor in business by yourself. Know all of the details of your contract. This includes understanding what the terms mean and how soon you can collect. The bottom line is that you can’t pay this month’s light bill with money you won’t see until 30 or 60 days after the job is completed. You will have to keep this in mind when doing your financial planning and business book keeping.

5. Banking Precincts

Always maintain separate bank accounts and accounting software. As enticing as it is to streamline the books by using your personal bank account or an existing bank account set up for another business, it’s a healthier practice to retain separation. You, or your accountant, will be grateful for that discipline later.

6. Difference In Employee and Contractor

Employee requirements are typically clear-cut, but when you’re working with independent contractors, employing can be a bit complex. Independent contractors can be a very cost-effective and cost-efficient solution. But be aware that they may be working for several different clients simultaneously and may not be available to meet all of your deadlines. On the other hand, you don’t pay them if there is no work to perform. Be it an employee or independent contractor, it’s necessary to define the working rapport and the compensation agreements in advance.

7. Prepare for New Tax Types

Taxes can be a real nightmarish undertaking for a small business that can’t afford an accountant. However, there are numerous tools on the market to assist in preparation and tracking of your expenses. Being self-employed as an independent contractor, you’ll have different documentation to file and taxes to pay than an employee.

Building a successful business begins with a vision, but devoid of prerequisite knowledge and tools, it can transform into a horrendous nightmare. There is no substitute for taking responsibility for your own success. Take the dive, but be sure that you know the depth of the water beforehand. By doing this you can avoid the pitfalls of starting a business by first knowing what they are.

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