Starting a business is risky – one in five new companies don’t survive the first year, and only about half are still around after five years. MWE Partner Al Materazo talks to Long Island Business News about common mistakes that small business owners often make.
1. Being undercapitalized
When they start out, “many companies underestimate how much they’re going to need to get their mission accomplished,” said Al Materazo, partner in charge of small business for Margolin, Winer & Evens LLP, an accounting and business advisory firm in Garden City. “If you run short, it can be hard to go back to the well a second time. If you can’t find capitalization, you can lose your business investment.”
3. Not getting the right help
Another thing that startups often do wrong is trying to do everything alone, Materazo said. In many cases, “They don’t want to spend the money,” he said.
“I advise that startups look for an attorney that is experienced in the area of business that they need and not just say, “Hey my cousin’s an attorney; he’ll be my attorney,”‘ Materazo said. “If you’re a technology company, look for an intellectual property attorney. If you’re getting involved with a franchise, you need a franchise attorney. If there’s a real estate component – if you need to buy a building – seek out a real estate attorney.”
4. Letting infrastructure lag behind sales growth
Some startups grow very rapidly out of the gate, but they get into trouble when infrastructure doesn’t keep up with the sales growth.
“They don’t hire the internal accounting or customer service people that they need, the proper forms aren’t filed and other regulatory matters are not taken care of because there’s nobody there to get it done,” Materazo said. “When infrastructure does not keep pace with top-line sales, there’s no one to babysit those items. Certain things can be outsourced, but you need to have the right people on the inside.”
9. Not having a exit plan
“When they start a business, you need to understand what you’re going to do with the business down the road,” Materazo said. “If you’re planning to bring in private equity like venture capitalists, or you’re planning to grow it yourself and look to sell it in seven to 10 years, or you’re looking to hand it down to the next generation, you’re going to go down different paths. Who you hire, when you hire them and how you operate the business will depend on what your ultimate exit plan is going to be.”