The 3 Biggest Challenges New Entrepreneurs Face (and How to Address Them)
If you're thinking about starting your own business or side hustle—you need to check out these tips first.
New entrepreneurs face a novel world of challenges when they start. From new financial burdens to the budgeting of time, there are many obstacles in the way to success. However, three of the most common challenges are also some of the easiest to manage. With a little preparation and insight, a new business owner can navigate the pitfalls of business ownership, and come out stronger on the other side.
Here are the three biggest challenges that all new entrepreneurs must conquer.
1. Making Rookie Mistakes
You’ve done the research. You’ve got a killer business plan. Your opening day was a success. Everything is smooth sailing from here, right?
Nope! There are plenty of hurdles that a small business owner will need to navigate. Without prior knowledge and preparation, though, some common rookie mistakes can lead to big problems.
Stay on Top of Taxes
When you're hired as an employee of a company, their accounting team withholds taxes from your paycheck on your behalf. However, now that you're on your own as an entrepreneur—you are responsible for withholding your own taxes from the payments you receive from your customers.
This is one of the most common mistakes that new entrepreneurs make, and the results can be disastrous. You should be putting aside money from each sale you make in order to pay the appropriate taxes, and depending on your specific situation, you might be responsible for paying quarterly taxes.
TSR contributor Matt Lurie learned this lesson the hard way with a surprise tax bill of over $10,000 in his first year freelancing.
Your specific tax situation will vary depending on what kind of business entity you are. Do some research on which legal structure you should choose, and once you've decided on a structure that makes sense for you, you'll have a better idea of what kind of taxes you'll owe.
Make sure when you set the pricing for your goods or services that you're taking the taxes you're responsible for into account, along with your cost for materials and labor. Many entrepreneurs report that when they finally factor in all these costs together, they are actually making way less than they had originally thought—and in some cases might even be losing money.
Research Your Health Insurance Beforehand
Once you become self-employed, you’re responsible for acquiring your own health insurance. The Affordable Healthcare Act has made this easier (and sometimes cheaper). Still, premiums, deductibles, and other costs will be different from what you’re used to.
Usually, they will be higher. This means you’ll have to shop around for providers that fit your needs. Be sure to budget for this by pricing your goods and services accordingly.
Often, entrepreneurs and other self-employed individuals can receive tax credits to help offset insurance costs. And, there are statewide options that help find low-cost insurance. These are based on factors such as income and household size. In any case, research is key!
2. Common Money Woes
Brushing up on your financial skills is a crucial step for new entrepreneurs. Steady and beneficial finances are vitally important for a successful business. Also, there are many pitfalls for new business owners to fall into, like spiraling debt and unfair rates. With some savvy research and caution, however, you can avoid the common financial mistakes.
Keep an Eye on Your Debt-to-Income Ratio
It can be tempting to max out credit cards while you’re getting your business off the ground. You have to spend money to make money, right?.
While that may be the case, you should never let your debt-to-income ratio (DTI) go negative, if you can help it. Temporary debt is expected in life, but it should be just that: temporary. Carrying a negative debt-to-income ratio will have negative impacts on all aspects of your life. Personal and business funding will be harder to come by. And that will limit your chance for growth, including homeownership and growing the business.
Approach debt cautiously, and ensure that your DTI ratio stays healthy.
Avoid Loans if Possible
Starting out, loans might seem a great way to gain the funds you need to grow. However, without a guaranteed revenue (and a strong DTI ratio), loans can be risky decisions. Until you can guarantee a projected payoff date, loans should be a last resort.
If you need extra funds, look to other sources first, such as:
- Small business development centers. They offer free advising on many aspects of business. Experts are available for marketing, technology integration, and financing assistance. Plus, they are great spots for networking.
- Grants. These funds come with no terms or fees, but they are awarded for specific reasons. Often, they are designed for underrepresented business owners, including those owned by women and minorities. Still, there are many grants across all industries, so it never hurts to look!
- Credit cards. Credit cards might be easier to handle for a new business owner. As long as you keep the usage low, you won’t be locked into fixed monthly payment amounts. Also, building credit will allow you to achieve your financial goals in the future. If your credit isn’t great, look at using secured cards to build credit. These are opened with a secured deposit that sets the credit limit. They report like unsecured cards, but the credit limit is kept low to avoid dangerous debt.
3. Finding a Work/Life Balance
Entrepreneurs often call a work/life balance as more of a blend. It can be difficult to distinguish work from personal life, when your work is your life. However, successful entrepreneurs know the importance of finding a work/life balance.
Your work is likely your passion, but like any passion, too much can be disastrous. Don’t allow the lines of life and work to blur. When you start to lose sight of the balance, remember these tips:
Stick To a Schedule
One of the biggest challenges for a new entrepreneur is setting a daily schedule. You might think it wise to work as much as you can. Coffee is cheap, right? Plus, we’ve all heard the stories of successful billionaires working 22 hour days.
No thanks. Entrepreneurs don’t start businesses to lose more of their time to work. Business owners must create a daily schedule, and stick to it. Make it yours, and craft it to work for you.
Incorporate what helps you work—coffee breaks, 15-minute workouts. It’s your time! Also, keep in mind that the most productive schedule is 52 minutes on, 17 minutes off. So, be sure to fit in rests; they help to break up the grind. And, it gives you a minute (or 17) to breathe and think about yourself.
Most importantly, remember to hang up the apron at the end of the day. Keeping work and life separate can be difficult, especially for an entrepreneur. Keeping work at work, though, helps keep stress down. Plus, your brain needs time to process the day. Pick a time, and stick to it.
Keep Your Other Goals in Mind
Starting and running a business requires most of your concentration. However, your life doesn’t stop when you’re working. At the end of the day, you have to keep work at work. Remember to pay attention to your other goals as well.
Your personal finances are especially important. If you’re looking to buy a house in the future, make sure you understand how much you’ll need for a down payment. With the help of the business, you can start setting aside funds today. When it’s time to close on a house, you’ll be ready.
Likewise, don’t neglect your personal relationships, especially for the sake of work. It may seem important to clock a few more hours to meet with that client, but your relationships have helped you get to the point you’re at. Go out with your spouse. Chat with your friends. Go to your children’s sporting games. Those close to you will understand a late night here and there, but make them a priority. Even if you have to schedule time, do it. You’ll be better for it.
A Final Word on New Entrepreneurs
New entrepreneurs face many challenges, but these three will always stand out at the beginning. They are the biggest hurdles a new business owner must overcome, but with a little guidance and preparation, you should be in great shape. Methodical research and setting schedules will help new business owners maximize their time, and keep them on schedule for all the important aspects of life. As well, money woes can diminish with smart financial planning.
Business owners will always face challenges, but learning to adapt at the start of your venture will save plenty of headaches in the long run.