First-time entrepreneurs tend to make similar mistakes—in good economic times or bad. If you're considering venturing out on your own, steer clear of these mistakes:
1. "Forget research and planning—I just want to get going." "We often find that people haven't thought through their business, and that's what tends to get them into trouble," says Eric Zarnikow, associate administrator for the U.S. Small Business Administration's Office of Capital Access. "A business plan is really the road map of how they're going to go about running the business. It will help them determine what resources they need financially or otherwise...It's also going to be a key thing in talking with a bank or other financing sources about their business."
Doing your homework doesn't eliminate risk, but it can help you "understand risk and when it might come up and what options you have for how to deal with it," says Dennis Ceru, who teaches graduate courses in entrepreneurship and business strategy at Boston University and Babson College.
2. "I'm sure cash will come in quickly." "As a general rule, getting to be profitable in a small business typically takes longer and costs more than anyone plans for," says John Bjeldanes, a San Diego-based business counselor with SCORE, which offers advice to small businesses. "If there's no leeway in the [business] plan, you run into problems," he says. Ceru suggests thinking of your business as a life form that has to pay three to nine months of "living expenses" like rent and phone service while you're busy finding customers.
3. "Now is a good time for me, and it's about me." When unemployment goes up, start-up rates go up, according to Scott Shane, author of The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors and Policy Makers Live By. "We see an uptick as the economy gets worse, but that's probably not a good strategy," says Shane, a professor at Case Western Reserve University. It's important to honestly assess—regardless of your personal situation—whether the opportunity is right. Shane says, "The market doesn't care whether you really want to be an entrepreneur, and that's one of the biggest mistakes people make."