5 Common Small Business Mistakes

AAA

For every story of a successful business that takes off from a modest start, there are many more tales of failure or regret. While this shouldn't discourage one from take a brilliant idea and turning it into a thriving business, there are some common mistakes that should be avoided in doing so. These errors aren't just common; they can be deadly to any entrepreneurial endeavor. (For related reading, also check out Are You An Entrepreneur?)

Partner Problems

Picking the right person to guide your business from idea to success is as important as choosing a lifelong marriage partner. Many experts suggest that budding entrepreneurs avoid becoming partners with family members or close friends, as it could blur the boundaries needed to make good business decisions.

While many real-life partners have made excellent business partners, not everyone has been so fortunate. U-Haul's bankruptcy in 2003 is a striking example of what can go wrong when families bicker.

Prickly Patents

Securing legal rights to your product or business idea is important in ensuring no one else can lay claim to it. Patent law cases are rampant, entangling big names such as Samsung vs. Sharp and Microsoft vs. Salesforce.com. In order to ensure that your idea really remains your idea, patenting and trademarks are the best way to protect your rights. You don't want to end up like Robert Kearns, the inventor of the intermittent windshield wiper; he faced a lifetime of lengthy court battles to prove the genius behind his idea.

Being Careless With Control

It might seem like a sound decision to hand over authority to business partners or trusted experts. History, however, has proven that this can often be a costly mistake. If you are the sole proprietor of a small business, or largely responsible for the cash that passes through the corporation, it's ultimately your responsibility that funds be wisely spent. Never give check-signing authority or access to online financial accounts to an employee, as this puts you in danger of having fraudulent activity occur. (Learn more about different business structures in our Starting A Small Business Tutorial.)

Avoiding All Risk

If you're in need of equity financing, it will take a certain element of faith to reach out and allow investment partners into your small business. Without them, you could fail to grow, dooming your company to become stagnant and behind the times. While it takes some courage to begin approaching and screening angel investors and other partners for the resources that you'll need to carry on, it can be done with minimal risk to your own capital and the company's processes and culture. By reaching out to proven leaders in your business niche, you can get the capital you need, in addition to access to their networks, contacts and skill.

Keeping Secrets

It may be tempting to keep your business ideas to yourself out of fear that someone may steal them. Failing to get expert advice or consulting services as a result of your stealthy objectives, however, may cut you off from valuable connections that can improve your business as time goes on. Most issues of this type can be solved by a well-written confidentiality agreement - something that doesn't have to break your business budget. This type of agreement (also called a "non-disclosure agreement" or "NDA") can be a simple one-page contract guaranteeing that your business practices not be revealed to the media or others in your industry - especially competitors. While samples of generic NDAs can be found online, it's recommended that you seek counsel with a law professional to craft one that suits your specific business and needs.

The Bottom Line

Learn from the failures of others, and avoid these five common blunders of businesses from every niche. Many of them are not very expensive, and being prepared for the unexpected can help you avoid messy legal matters down the road. (For more information, see In Small Business, Success Is Spelled With 5 "C"s.)
Related Articles
  1. Entrepreneurship

    How Many Startups Fail And Why?

    Why do so many businesses fail? And for that matter, how many of them actually do fail?
  2. Entrepreneurship

    How To Write A Business Plan

    A well-written business plan will help you gain investor interest, and determine the strengths and weaknesses of your company.
  3. Entrepreneurship

    Is Your Business Model Viable? An 8-Point Test

    You have a great business idea, but now you wonder: is my upstart business model really viable?
  4. Options & Futures

    Teaching Your Partner About Household Finances

    This is just one more way to take care of one of the most important people in your life.
  5. Entrepreneurship

    4 Reasons Small Businesses Fail to Grow

    Owning a small business can be financially rewarding, but there are certain obstacles that may make building sustainable wealth more difficult.
  6. Entrepreneurship

    Starting A Small Business: Making The Leap

    By Amy Fontinelle Often, the best way to strike out on your own is to do it gradually. This reduces the risk that you'll be without an income and allows you to test the waters and see how much ...
  7. Entrepreneurship

    Business Plan: Conclusion

    By Amy Fontinelle A business plan is not just a lengthy document that helps you obtain financing. It's truly a thorough examination of whether your business idea is viable. Preparing your business ...
  8. Retirement

    Financial Infidelity: Are YOU A Cheater?

    These sneaky financial moves could erode your finances - and your relationship.
  9. Credit & Loans

    6 Financial Questions To Ask Your Partner

    Discussing finances with you partner can save you loads of stress down the road.
  10. Entrepreneurship

    Business Plan: Describing Your Business

    By Amy Fontinelle In order to prevent your executive summary from being too long, and to give readers more detail on what your business actually does, you'll want to include a business description ...
Trading Center