You tell your friends and family that you want to open your own small business. You get together a business plan and meet with the landlord, your accountant and some fellow entrepreneurs.
Everyone gives great advice, but what aren’t they telling you?
About half of small businesses will survive to five years, according to the Small Business Association. There are many scenarios you should try to avoid as a new entrepreneur. These are some of them.
1. Insufficient experience
“When it comes to business management, (a new business owner) may have a lack of experience in the industry they’re going into,” said Jackeline Mejias-Fuertes, director of the Small Business Development Center at Brookdale Community College in Middletown. “I love decorating, but I’m not an interior designer. That’s a huge one that people don’t understand — the value of having the knowledge to run a business properly.”
Alison Keating opened her first business, Barefoot, an “athleisure” boutique in Spring Lake, a year ago.
“I was managing yoga studios in North Jersey before (opening Barefoot) and I’ve been in retail since I was a teenager,” Keating said. “I combined (my experience).”
2. Not testing the product
Some new entrepreneurs start a business without testing their ideas on a small scale to see if there’s a market and need, Mejias-Fuertes said.
Marie Carini and Joe Mocci are brother and sister, and have owned Zoom Hair Studio in Red Bank for 30 years. Prior to becoming business owners, they worked in another salon for about 10 years.
“We always knew that ultimately we wanted to own our own salon, so we built a really solid clientele … and then we opened up here,” Carini said.
3. Not understanding sales
“Understand the economics behind small business in terms of sales — some businesses don’t understand there’s a specific point where you’re going to make the max profit, period. Going beyond that point, your profit is going to diminish. More sales doesn’t necessarily mean more profit,” Mejias-Fuertes said.
During her first year of business, Keating said she underestimated her business’ profit potential.
“For the financials, I definitely overestimated expenses and underestimated revenue, but I did that on purpose,” Keating said. “I wanted to be prepared to work and gauge the efforts needed to put into sales and marketing.”
4. Underestimating how much you’ll work
“Those that go into business thinking they really don’t have to work in their business if they’re the owner … fallacy. You have to put the time in in order to make it work,” Mejias-Fuertes said.
“We’re here 30 years and we still work five days a week,” Carini said. “We’re not sitting at the beach and picking up the deposit and going to the bank — it doesn’t work like that. We are here making the decisions, and even if somebody else is making the decision, it doesn’t go through until we’re OK with it. It’s our business and we want it run a certain way.”
5. Not keeping good records
“People have to understand, you have to separate your finances,” Mejias-Fuertes said. “Business is business and private is private. … Make sure you have a good record keeping system that’s going to work for your business.”
This is something that Keating had to learn when she opened Barefoot.
“I have a really detailed and in-depth POS (point of sale), which keeps inventory and cost and everything. I use QuickBooks which keeps everything in check,” Keating said. “I sat down with my accountant and said you’re going to have to teach me how to do this. I can do it on my own now, but I still have questions and I still call him and run things by him.”
6. Misallocating capital
“Can you see yourself (working) on a shoestring budget? Small-business owners don’t think they need to (calculate) in salaries for themselves. My question is, how do you expect to live? If they’re looking to obtain some capital to help fund their business, bankers say, ‘Where’s your salary?’” Mejias-Fuertes said.
7. Thinking you’ve got it figured out
In the end, there are some things new entrepreneurs inevitably will learn along the way. For Keating, it was when to order merchandise.
She opened Barefoot in March, which is between seasons in the retail world. She had “leftover” winter options, and spring merchandise wasn’t shipping until April.
“That’s something I didn’t even think of. Now I order six to nine months ahead of time, so I’m already ordering for holiday,” Keating said. “Don’t be afraid to ask a question…ask questions to Realtors, landlords and other business owners. People want to share and they want to see other businesses succeed.”
“Don’t bite off more than you can handle, initially. Do something that feels comfortable that you can handle, don’t try to be too big, too quick, you know? Keep it controllable,” Mocci said. “It’s all about customer service, you have to be nice to people.”