A lot of bloggers out there will tell you that setting up an online business is a simple task. You just figure the demand for certain products or services in a given marketplace, provide a good offer on an eye-catching website, and that’s it. As you might assume, these assertions often come from people who have never tried doing business online. Although it sounds really simple in theory, starting an online business comes with many risks and challenges.
It takes a lot of research, planning, and patience (and usually failure) to succeed in the online marketplace. It’s true that it offers a chance to do business with fewer up front financial investments and costs. However, when it comes to financial issues, there are some common mistakes that can stand in your way to success.
5 things to avoid when setting up an online business
Based on experience with online businesses, here are 5 common mistakes that even the most dedicated owners make. Go ahead and pat yourself on the back for reading about them and avoiding them.
Mistake #1 – Not separating business and personal finances
I believe you’ll be tempted to start your small business using your personal credit card and bank account. Although it seems like a simple, harmless solution at first, it can lead to some serious trouble later.
One of the problems is that you will never be able to follow where some expenses end and others begin. You’ll pay for personal expenses on your business credit card or debit card, and vice-versa. If you can’t keep detailed financial records for your business, you will never know if you are truly making profit.
The lack of clear financial records will also lead to some trouble as your business starts growing. If you ever need financial support from a creditor or an investor, they will ask for detailed records to see if your business is worth the investment.
Mistake #2 – Not preparing a business plan
Okay, let’s get real. Things are not going to go according to plan. But, that doesn’t mean you shouldn’t start with a plan! A thoughtfully crafted business plan can save you from lots of headaches and unnecessary expenses later on.
If you put your efforts into planning, you’ll be able to identify the optimal amount of money you’ll need for a good start. Your business plan will also help you clearly define the smartest ways to invest your money in order to achieve success. This doesn’t mean that you need to plan ten years in advance. Try starting with a simple six or twelve-month time-frame. You just need to have an idea of where you are going, how you will get there, and when.
When you put your business plan into action, remember not to go to extremes. Don’t expect that you can forecast every single detail, be flexible and be ready to occasionally act on your gut instinct. The other extreme you need to avoid is getting carried away by a temporary situation and ignore your plan entirely.
Corollary Mistake: It’s also easy to “over-plan”. While most people do the mistake of “winging it” and going in without any planning, some do the opposite mistake. Some try to plan every little step and detail before they get started. This is just as harmful.
You want to strike a realistic balance. Leave some space for flexibility and changing plans based on real world results. You don’t want a rigid plan that predicts everything in advance. You want a general overview, with some flexibility for changing methods and strategies based on real-world feedback.
Mistake #3 – Not planning your marketing efforts
Any good business success story lies on the pillar of reaching the right audience, in the right way, at the right time. Therefore, planning your marketing is a must if you want to leave a mark in the business world.
I strongly believe that it’s important to try various marketing tools over time. However, when it comes to online business finance, I’m not a fan of rushing into each and every new opportunity without a proper plan, as I’ve seen many businesses overpay for customer acquisition.
Marketing your business will inevitably bring a number of customers, but you have to see if a particular strategy brings life-time customer value. This means that even the smallest budget for testing the results of your efforts can help you a lot.
My advice is to divide your marketing budget to try several marketing tools. Some of them will be very effective, and others will bring less significant results. However, it’s important to find the best solutions for your business before you decide to implement a big and expensive marketing strategy.
Mistake #4 – Not keeping track of costs
Being excited about attracting new customers and making more sales, you can easily find yourself forgetting to keep track of costs. If at some point you realize that you are spending more than you actually earn (and hey, let’s be honest, THIS will happen as you start out), you’ll be forced to make some tough decisions.
Regular website-related costs, like design, hosting, domain names, and maintenance, are easy to keep an eye on. However, recurring software, apps and services can quickly eat up a lot of your monthly cash flow.$19 here and $39 there can quickly add up month after month. Make sure you are being very selective as you make purchases and that you are verifying each month that a recurring service is actually providing a benefit.
Mistake #5 – Not taking finances seriously from the start
Doing their own finances and bookkeeping is one of the most common mistakes people make when setting up an online business. Trying to cut costs, they put this commitment on their shoulders even when they have no training, nor experience in doing finances.
After a while, they find out that it can cost much more to do their own finances than it would be to get guidance from a professional. This is usually at a point where they have already done some damage that takes time to fix. Getting the right guidance upfront or outsourcing bookkeeping to an independent contractor will also give you more time and energy to focus on growing your business.
However, even if you are not good at finances and you have a professional doing them for you, it’s your responsibility to have regular oversight. You have to be able to read and understand your financial statements. It’s crucial as a business owner to know your company’s finances inside and out. After all, you own this thing!