There are a lot of components that go into running and owning a small business. From strategic business planning and hiring new employees to creating an advanced tax strategy, there are a lot of ongoing tasks and duties small business owners need to attend to for success. In 2021, 78% of small business owners expected to survive past their first year, and only 4% of business owners feel like they won’t succeed. So why do so many small businesses inevitably fail within their first or second year?
The truth is: It’s easier to start a small business than it is to maintain one. When it comes to scaling your small business into something bigger and greater: It can be hard to know when is the right time to make the right choices.
As a small business owner, it’s no secret that you play several roles in the company and wear many hats in the workplace. It can be hard to focus on the tasks needed to grow, develop, and work towards the business you’ve always wanted. Luckily, if you're just starting to get your business off the ground, you can learn from other businesses' mistakes and challenges to help you make better ones for your business.
Let’s take a closer look at the 3 top mistakes small businesses make and how it affects their growth and scaling opportunities throughout their time.
Mistake #1: Failing to provide employee benefits to improve retention
The top-of-the-line employee with the exact skill set you need to run your small business can get hired by another company with all of the employee benefits and perks they have to offer, and you know that. As an employer, it’s time to start thinking about more than just what an employee can offer you, but what you can offer an employee.
Many small businesses don’t feel they have the funds or resources to provide their employees with a competitive benefits package. However, constantly hiring new employees can turn into an expensive and lengthy process in itself. The cost of replacing that employee can cost you anything from one-half to two times the employee's salary. That means, if your employee makes a $60,000 salary, that turnover could cost your small business anywhere between $90,000 to $120,000 to replace and rehire a new employee. All that time and money that went into the resources for hiring, training, and setting your new employee up for success would be for nothing if they left your company three months later.
The worst part is: This is a fixable problem for employers. Don't make the same mistake other small businesses make and assume that employees will stay because they like what they do or like your business. Small businesses should do everything in their power to make an active effort to retain valuable employees. When it comes to small businesses, each hire matters. Every hire is an investment into the growth you hope to see and the business you hope you’re scaling into. If you’re constantly hiring and struggling to maintain the best of the best, it’s time to take a closer look at what you’re offering and how you can change that.
The competition to keep really good employees is fierce. If you aren’t offering employees benefits, someone else will. If you want the best, you need to offer the best.
Mistake #2: Leaving money on the table when it comes to tax credits
There are a lot of expenses that go into starting and maintaining your small business. Especially when it comes to startup costs. For many small businesses, the money for these costs comes directly from the business owner's pockets. In 2021, 39% of small business owners used cash as their main form of financing.
However, did you know that you can write off up to $5,000 of those initial start-up costs with the Startup Tax Credit? Better yet, you can receive an additional $5,000 for organizational costs and fees. That's $10,000 that you can put back into your business for scaling or growth opportunities! However, not all small businesses know this and fail to capitalize on all of the tax credits they are eligible for.
Tax credits help lower the amount of money small businesses owe and elevate some of the financial stress. Essentially, if you aren’t taking full advantage of every tax credit you are eligible for, you’re leaving money on the table. Valuable money that can go towards employee benefits, scaling or growth, and you’re business as a whole.
Here are just a few tax credits you can look into today that you may not have heard of:
- Retirement Plans Startup Costs Tax Credit
- Empowerment Zone Employee Tax Credit
- New Markets Credit
- Work Opportunity Tax Credit
- Health Coverage Tax Credit
- Plug-In Electric Vehicle Credit
- Credit For Increasing Research Activities
- Employee Retention Credit
- Paid Leave Credit
These are just a few of the tax credits your small business may qualify for. Another thing to note is that new tax credits are made every year, so it’s important to stay up to date, do your research, or reach out for professional help.
When it comes to your taxes and tax credits, don’t be afraid to reach out for professional guidance to create an advanced tax strategy. These plans of action can help you save money and reduce your taxes every year. As a small business owner, it's okay if you can't do everything. Hiring a professional can help you save thousands during tax season and give you the extra hand needed for success.
Mistake #3: Failing to scale profitably and efficiently
This is a heavy hitter mistake many small business owners struggle with. When is the right time to efficiently scale your business and how? There is no right answer.
When small business owners first start trying to scale their business, they think they need to hire more, spend more, and build more. This is a common mistake that can negatively impact your business for years to come. Why? Because it decreases your profitability and provides you with more problems than solutions. With 29% of small businesses failing because they run out of money and 17% because they lack a business plan, it’s no wonder why failing to scale profitably is one of the top mistakes small business owners make.
Before you jump the gun, you need to start thinking about scaling your business strategically and slower than you originally planned. There is only so much you can do in a day. Outsourcing and working with third-party providers can help you scale quickly and rely on professionals or specialists to give you a helping hand during this process. Never be afraid to outsource tasks! These professionals can help you streamline productivity, scale in a profitable direction, and act as an extension of your business.
Another great rule of thumb is to scale slower than you originally planned. Ask yourself: Are you ready to scale? Is there data, sales, or evidence that show that you’re ready? Is this growth you're seeing seasonal or consistent? Slowing down and taking the time to create a business plan that works for you can help you build a more sustainable business. If you move too quickly without a solid business plan, you could end up burning through money, which harms your scaling efforts.
At the end of the day, it’s hard to predict the right choices. We encourage small businesses to analyze sales and data, slow the process down, and capitalize on what you already know is effective. Let the scaling come naturally!
Wrapping up: Mistakes small business owners make
Every small business makes some type of mistake. Inevitably, it’s hard to predict what is going to work well for your business and what’s not. Never be afraid to reach out for guidance and rely on professionals when you aren’t completely sure what you need to do. Take everything as a learning opportunity and always be looking for ways to improve your experience for your employees, network with like-minded individuals, and build a brand you can be proud of.
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