Avoid 8 Common Mistakes When Starting a Small Business

# 1: Starting a Business without an Entity

Business management is required for business licenses or registration protection in most states, but this process is different from incorporating or organizing an organization. If you do not register for a limited liability Company, or LCC, protection, business partners may be liable for any bad business-related incidents.

# 2: Insufficient capital

Called "money", capital is a partner, shareholder or business members contributing to the ownership of the business. Some businesses are capital intensive - such as a dental practice - others are capital-efficient - such as at a copy editing company - but in every business, the lack of money is the number one cause of failure.

# 3: Only plan for success

Every entrepreneur dreams big - and thank goodness - but sometimes things get worse. To be successful, a new business needs to be flexible in its processes and develop a contingency plan that is easily understandable in the case when the idea is not bigger than expected. For example, your bank credit line should never be used, but it can be critical when you hit the road.

# 4: Understanding the industry, but not the market

Most entrepreneurs know their industry closely and are proficient in their products or services. But criticism for their success or failure is a simple question: will others pay for the product or service? These products fit the market sometimes can be tested in a small way; somehow you have to test to make sure you are building a FOD model and not an Easel.

# 5: Doing It Yourself

By ensuring that the accountant, banker, and attorney with whom you are on a first-name basis, you will build a strong foundation for your business and not make mistakes that will cost you more to fix your line.

# 6: Working with friends instead of business partners

In our example, Tom and Jerry are good friends, but their business needs to be treated seriously. Jerry has a day job, so Tom needs to ask some difficult questions: Is Jerry continuing his day job? Does he expect an equal share of the equity? More on that below. To be successful, business partners are not afraid of hurt feelings.

# 7: 50/50 Partnerships

Two people want to start a business naturally be fair to each other. But who decides if the partners disagree? Legal documents have a way of addressing this, but it usually makes things easier if the partners agree on a 5 percent stake.

# 8: Ignoring Intellectual Property

Describes almost all the insights of your business, including intellectual property, or IPs, trademarks, copyrights, trade secrets, and culture. If you ignore your IP, others might copy your business. If you ignore someone else's IP, they can sue you for infringing their protected property.