Making decisions is a huge part of running a business and it’s imperative that you know how to properly assess a situation and come up with a solution that works. It’s the people that aren’t decisive and don’t take action when a crisis comes up that end up failing. But even before you get to that point, there are a lot of basic decisions you need to make about your company that you could easily get wrong. These are the early decisions that a lot of new business owners fail to implement correctly.
The Name
It goes without saying, a good company name is important for every business, but a lot of people simply don’t know where to start. Your name should give people an impression of what your business does and provide the building blocks for you to start to build a brand.
Your business name will set the tone of your company before customers have had any other interaction with you so if you get it wrong, you could be pushing potential customers away. For example, if your business is aiming for a young demographic,
Company Formation
When you first start your business and you’ve got a product and a name, it’s time to register your company. Now, you’ll have to make a decision about your company structure and this is a step where many new business owners go wrong.
A sole proprietorship is the most basic company structure, this is where one single person is at the head of the company. There are some attractive tax benefits and if you don’t have any partners, it might be the best option for you. However, you’ve got to proceed with caution because you’ll be liable for any debts that the business has. That means if things go wrong, your personal finances are at risk and you’ve got no level of protection.
If you’re not running the business on your own, you’ll need to start looking into some of the other options. A C corporation is one of the most common structures which allows for multiple ownership of a company. This is a more attractive option if you’re looking for a lot of investment and it’s the right way to go if you want to trade shares publicly further down the line. Corporations also offer liability protection so if the business does hit hard times financially, your own assets will be protected. On the other hand, a corporation is the most expensive structure to set up and run so you should take that into account when you’re first starting out.
Companies that are run by a few people but don’t want to form a corporation could opt for a partnership instead. There are two types of partnerships, general and limited. The general partners are the people that handle the running of the company and they are liable for any debts. The limited partners are outside investors that do not run the company and are protected financially if anything goes wrong.
There’s no right answer when it comes to picking the right company structure so you need to consider your own personal financial situation and your plans for the future of your company so you can make an informed decision.
Growth
Growth is the end goal of most businesses, but you’ve got to be very careful about your decisions regarding it. Many businesses have failed because they’ve seen a bit of success and taken that as a sign that they should expand rapidly and capitalize on it quickly. Sometimes this works, but often there isn’t the demand for their product and the increased running costs burn through all of their capital, causing them to fold.
When you’re considering expansion, it’s important to ask yourself a few questions. Do you have any new product in the pipeline or are you relying on finding new customers for your existing ones? Do you have the money to stay afloat if you fail? Do you have enough experienced staff to help put your plan for growth into action? If you can’t answer those questions, you’re not quite ready to expand yet.
There you have it. A simple list of some of the most important decisions new business owners face and how to avoid making common mistakes associated with them.