Never give up on your dreams — but, most U.S. small businesses are not in business five years after they start up, Scott Shane grimly writes in Small Biz Trends. To avoid the five year failure mark, focus on your finances and be aware of where your money is or isn’t going. Keep your business in healthy operation by avoiding the following small business mistakes.



No Business Plan

Daily Worth writes that a good business plan will ground you in the reality of your business. A thorough goal-oriented business plan can keep you away from the 50,000 foot view many entrepreneurs are prone to having. A solid execution is paramount, and a business model is the foundation for that execution. A business plan should contain cash-flow estimates, financing requirements, market projections, and a breakdown of startup costs.

Underfunded Businesses

Once needs are documented in the business plan, the right funding is your next goal. Without sufficient startup capital, you’re setting yourself up for unplanned debt. High-rate loans or credit cards as short-term solutions are tempting. Maximize your resources, including savings and bonds. Whole life insurance policies can be cashed in, and you can sell structured settlement payments for a lump sum. Start out with the right reserves, so you’re not caught short.

Debt-Income Ratio

Keep tabs on the amount of debt you have already acquired, recommends the Small Business Association. Creditors look at the amount of income you currently have compared to the total amount of debit. If you have a large forthcoming contract for a significant amount of revenue pending, lenders will look at your current cash flow and rarely consider future earning potential. Work toward reducing your amount of debt, in case you suddenly need to get a loan to stay in operation.


You probably believe in your business idea — and you should. But don’t have too high of expectations for your startup. Leasing an expensive space, buying $500 desk chairs for the staff and investing thousands into sophisticated technology can sink your ship before it even had a chance to float. Be creative with minimal investing in infrastructure. Focus on a good product and customer service excellence. Companies that specialize in office liquidations thrive because of poorly planned startup businesses. Don’t over-indulge and dig your business into a hole.

Excessive Hiring

Inc.’s Brian Hamilton shares his personal experience with hiring too many people too soon. A Brian Hamilton tip? Hire according to the company’s growth curve. Make sure you have an influx of revenue to pay the staff you are hiring. Business planning includes funding for the initially essential personnel. Hire employees to wear many hats until the business has grown enough to support a sales and marketing director or a social media manager.

Credit Terms

In the early days of your business, reconsider offering customers credit. Your business needs a healthy revenue stream to grow to a point where you can afford to have open accounts receivables. Most customers still pay the amount owed, while only a few really need credit. Customers who need credit are risky. Build a customer base first, then grow and offer limited credit.

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