How to Avoid Pitfalls When Starting a Startup

When you start a company, there are many things to consider, such as how it will be structured and what type of people should be involved. You’ll need to know the difference between an LLC vs S-Corp and what your business needs in terms of capitalization.

But before you can even get that far, you have to make sure your idea is worth pursuing. That’s why we’re going to cover some common mistakes made by startups — so you can avoid them at all costs!

LLC vs S-Corp

One of the most common mistakes made by startups is choosing an incorrect organizational structure. LLCs and S-Corps, for instance, are two different types of structures that a startup can choose from.

With an LLC, all members of the company are still considered self-employed and will need to report their income from the company on their personal taxes. This can be a problem if a company encounters a loss in revenue because there is no tax benefit given.

With an S-Corp, members of the company are considered employees with salaries and their taxes will then depend on this status. However, it’s important to note that taxes owed may be higher for those who earn more than $100,000.

Key Takeaway: An LLC may provide more freedom, but it can also allow for greater loss in the face of financial trouble.

Understand Business Plans

Not having a business plan is another common mistake that startup founders make. The first step to writing a business plan is understanding what exactly it entails.

The business plan should include all the details of a startup’s goals, including how they will be reached. This includes budgeting and financials, marketing strategies, sales forecasts, and more.

The main priority in writing a business plan is to get potential investors interested in the company. A good business plan should include:

  • A detailed breakdown of company history
  • Description of the business model
  • Business goals for the future
  • Financial projections made based on these goals

Key Takeaway: A business plan is a must when trying to attract investors and promote a company.

Determine a Company’s Unique Value Proposition (UVP)

A third mistake that startups often make is failing to properly determine their Unique Value Proposition, or UVP. Understanding what makes a startup unique is the first step to success. UVPs are often broken down into three components:

  • Core Benefit — The benefit offered by the product or service
  • Core USP — What sets this company apart from competitors and why people should choose them over others
  • Unique Differentiator — The thing that makes this company different from others who may offer the same core benefits or core USP.

Key Takeaway: Finding a UVP is critical to promoting a business's success and must be determined before marketing strategies are put into place.

Understand Seasonality

Many businesses have issues with seasonality, which refers to fluctuations in activity related to changes in weather or other conditions. For instance, summer months are usually slower for the ski industry because of warmer temperatures.

Understanding how seasonality can affect a company is crucial to its financial health and must be considered when hiring new employees or coming up with marketing strategies.

Key Takeaway: Seasonality is a common issue for many businesses and must be taken into account when promoting a company.

Know Your Role in the Company

Starting a company requires that every founder knows their role, as well as what everyone else’s role is. In addition to understanding how they can help promote the business’ success, knowing one’s own role will also allow for easier communication when dealing with other key employees.

Key Takeaway: All founders must know their role in the company, as well as the roles of everyone else working within the business.

Comprehending these common mistakes can help startup founders avoid problems before they occur and put them on a path to success. Knowing what to expect is an important part of running a business, and understanding these issues can help founders avoid problems before they even get off the ground.

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Gary Mike Adams

Gary Mike Adams

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I am an eclectic writer with many interests and topics that go through my head daily. I am extremely passionate about my craft and always want to push further.