This is a contributed post with business tips and advice to avoid business mistakes by Wethrift.
When you start your first business there are bound to be some important lessons, and these may cost you money. However, being aware of these simple errors earlier on can help you avoid any major damage to your business.
Nick Drewe, co-founder at Wethrift has shared six of the most common mistakes that new entrepreneurs make and how to avoid paying up for the error.
Lack of Insurance
Nearly every business needs insurance. If you have employees, you have to pay into workers’ compensation. Workers’ Compensation is a state-run agency that provides benefits to employees who are sick or injured while working for you.
You don’t have to pay workers’ compensation for independent contractors but be careful. The IRS has rules that explain the difference between a contractor and an employee.
Depending on your business type, you may also need general, product, or professional liability insurance, commercial property insurance, or home-based business insurance. The U.S. Small Business Administration has comprehensive information on the different types of insurance.
Picking the Wrong Business Name
A business name must be thoroughly thought through, meeting all of the marketing rules and most importantly, it needs to be unique. If you pick a name and start to print your business cards, build a website and even spend a few thousand on a sign, then to realize it is already in use, you are in trouble.
To avoid this startup business mistake make sure your business name wasn’t already in use. If not, you may have wasted time and a whole lot of money on a name already being used by another company. You could also be sued for copying their name or just confuse customers who see your name and theirs on the web.
Search the internet for the name you want to use to see if there are other companies in your area using it or something similar. Check the U.S. Patent and Trademark Database as well as your secretary of state to make sure the name you chose hasn’t been trademarked or registered as a business name.
Running out of Money
Everything costs more than we think and if you’ve ever done a home improvement project, you know this reality all too well.
Regardless of how meticulous you are with planning costs, you won’t think of everything and by the time you put your plan into action, your estimates may be outdated.
For all of these reasons, you may need more money to fund your startup than you think. Ideally, have 20 percent more than your budget.
Not Charging Sales Tax
Because sales tax is collected at the state level, the laws governing its collection are unique to the taxing authority. This is at both the state and local level. If you sell goods or services to others in your state, you are most likely required to include sales tax as an itemized charge.
Because state taxing authorities leave the collection of the tax to the business owner, if you don’t collect it, you still have to pay it and your state may add interest and penalties. This business mistake could end up costing you a lot of money. For more information, look for a department of revenue on your state’s website.
It’s rare to see a small business open its doors and grow exponentially in a short period. Often, it takes a few years to be proud of the volume you’ve achieved.
If you conducted market research and negotiated a deal with vendors of manufacturers that allowed you to charge a price people were willing to pay, don’t panic and make drastic price cuts when you don’t see the customers running in the doors.
The problem with cutting prices is that small businesses aren’t likely to have the cheapest price. You aren’t going to compete with the big box store or the competitor that has been in business much longer than you.
Some customers only look at price when evaluating a purchase and, likely, you won’t get their business. However, others would rather pay more for a better purchasing experience. Some customers prefer a relationship that gives them a go-to company when they need to purchase again. Quality customers are more important than quantity.
Not Registering Your Business
You may see yourself as just a small, part-time business that sells at flea markets, craft shows, and to friends. However it does not matter how small you are, you are a target for litigation. If people believe that your product caused harm, they have the legal right to file litigation against you. So you’ll definitely want to avoid this business mistake.
Business owners know that even if they’re likely going to prevail, defending the suit can be costly. If you haven’t formed an LLC or other business entity, your family’s money and property can be seized if you lose. Provided that you keep all business affairs separate from your personal finances, only the value of your business is at risk.
Registering your business is cheap and easy. Like sales tax, business registration is done at the state level and because of that, the rules surrounding registration aren’t uniform across state lines.