Home Based Business

Your New Home Business: Look Out for These Common Mistakes

 

 

Most people dream about working from their homes, and you are probably no exception. If you daydream about having your own business at home, you should understand some of the common pitfalls as you work on turning your home business dreams into reality and profits. Read on for some insights that will help get you in the right frame of mind for planning a successful home business.

1. One of the most common pitfalls is choosing the wrong service or product to sell. Be careful and do your homework first. Only promote products and services for which you have identified a clear and ongoing demand. Additionally, only choose products that you would use yourself or that you feel strongly about.

2. Many people want to skip out on doing market research. This is a critical step! If you do not research your market, how do you know who your core customers are, or how much demand there is for your product? If you represent products that you like and would use yourself, you have already done part of your market research. Define the size of your customer base, their age, gender, type of employment and other factors that you can use to more effectively promote your products to them.

3. Avoid overspending as you start up your business. The lifeblood of any business is cash flow. If you never have any cash in the bank, and have trouble covering all of your business bills, you will not have any extra funds to invest in growing your business. Cut corners where ever you can without impacting the quality that you offer your customers. For example, you can pay upwards of $10,000 for a full set of coordinating business cards, letterhead, envelopes and other accessories. Alternatively, you can use a website such as VistaPrint.com to create the same set of items, with your logo and branding, for less than $100. Buy gently used equipment, only hire labor that you really need, and hold off on the new luxury car purchase until your business turns a profit.

4. The flip side of spending too much money is not spending enough. This trap is easy for frugal people to fall into. In many ways, frugality works for a business. However, it creates problems when you do not hire people soon enough, spend the money on a bookkeeper or buy the right equipment to scale up your business. A home business cannot grow without investing more money into it; just make sure that you make your spending decisions wisely.

5. Do not make this mistake — keeping sloppy or poor records. If you absolutely hate record keeping, or never seem to have the time to do it, hire someone part-time. When tax time comes up, you could miss out on literally thousands of dollars in business write-offs because you did not keep adequate records of your revenues and expenses.

6. Never mingle business finances with personal finances. This can create a whole host of problems that you may not appreciate until you are deep in the midst of them. If you need to take money out of the business for personal reasons, it is very easy to record a paycheck or an owner’s draw. If you pay business expenses with personal money; however, you cannot take these as business expenses on your taxes. Additionally, commingling personal and business funds makes it impossible to assemble accurate financial statements. If you ever need to go to a bank for a loan, you absolutely need clean business financial statements.

7. Many business owners, especially new ones, make the mistake of not charging enough money for their product or service offering. It is understandable in a way, because some people are just flattered that someone else is willing to pay for what they are offering. However, this is no way to run and grow a successful, profitable business. When you charge too little, you actually devalue the item you are selling. Like it or not, when people pay more money for something, they attach more respect and more value to it. Know what it costs you to produce one unit of product or service, and make sure that your markup allows you to earn a fair profit margin for your trouble.

The list of mistakes that home business owners have made is very long and distinguished. It is unrealistic to expect that you will not make mistakes. The most important part is how you respond to them and keep your business growing. Keep the above tips in mind as you contemplate your business, and see how you can avoid these mistakes and make your business much more profitable.