3 Pitfalls for New Small Business Owners to Watch Out For

You may have the idea, but do you have everything else you need to be successful?

Is 2023 finally your year to start a small business? How exciting! If your business idea is still at that "thinking, hoping, and dreaming" stage, you're probably starting to work through some of your concerns regarding money, operations, and staffing. Unfortunately, no business is guaranteed to succeed. In fact, the Bureau of Labor Statistics measured business longevity for the period between 1994 and 2015 and found, quite consistently, that around 20% of businesses do not survive their first year of operation.

This number should give you pause, and I'm sure you would rather be part of the 80% that make it through their first year. This will mean avoiding some common small business pitfalls regarding business costs, location, and human resources. A strong business is well prepared to address all these concerns and solve problems as they arise. Read on for three questions to answer before proceeding with your business idea.

1. Have you considered all your costs?

While there are a lot of businesses you can start for very little money, most are going to require some initial funding. This could come in the form of a personal loan, your savings, or even by getting financial support from investors. You might also qualify for a small business grant. The question of how much money you need should be one you're answering in the detailed business plan you're writing as one of your first steps to becoming a small business owner. And as a bonus, if you are asking investors for start-up capital, that business plan will show them you're serious and they're making a good investment.

If you want to start a small business, you'll need more than just money for the business itself. It often takes a while for a new company to start making money, and you're going to need adequate savings to live on while you're getting your ducks in a row and business operations underway. It's a smart idea to have at least a year's worth of living costs in the bank before you set out to conquer the business world.

2. What operating space do you need?

Depending on what kind of business you're planning to open, you might already be set for your business' home base. For example, if you're going to be a web designer, you likely just need a quiet space at home to work from. That could be a spare bedroom you outfit with a computer, a desk, and a comfortable chair.

But if you have your heart set on opening a neighborhood bakery, bookshop, or beyond, you're going to need commercial space for the venture. Have you checked out the average rental costs for commercial space in your city? Can you afford the equipment you need? If the price is out of reach but you have some flexibility, you might consider starting your business as a web presence first, then opening a storefront.

3. Do you know your staffing needs?

Everything gets more complicated once you bring in extra people. If your business is going to be a party of one, you may think you don't need to worry about this question. But not so fast! Even if you're a sole proprietor, you may want to hire an accountant to ensure you're paying taxes the right way and aren't setting yourself up for financial failure.

Of course, if you are intending to hire staff for your business, you have many more things to worry about when considering this question. What skills will prospective employees need? Are you prepared to manage them yourself, or do you also need someone to oversee human resources? And going back to the money question, if you're not willing or able to pay fair wages, no one will want to work for you. While your small business may be a passion project for you, the people you hire will want to be able to pay their bills, save for the future, and still make enough to enjoy life, so think long and hard about what you can offer prospective employees.

None of these questions are intended to deter you from following your small business dreams, but they should get you thinking about all the working parts of a successful business. Those details are important, and since it's often small habits that can make or break your business, it's worth thinking about them now, before your business becomes a reality.