6 Startup Mistakes and How to Avoid Them

When you start a business, especially your first business, there’s an inevitable learning curve. You’ll make mistakes and some of them might cost you money. Here are six common mistakes new small business owners make and tips for avoiding them. 

The old cliché, trial by fire, comes to mind. As small-business owners, we’re forced to learn as we go especially when it’s our first business. Sometimes experience is the best teacher. Some mistakes, however, are easy to avoid. We put together a list of some of the most common mistakes that new entrepreneurs make and how to avoid paying up for the error.

Lack of Insurance

Nearly every business needs insurance. If you have employees, you have to pay into workers’ compensation. Workers’ Compensation is a state-run agency that provides benefits to employees who are sick or injured while working for you. You don’t have to pay workers’ compensation for independent contractors but be careful. The IRS has rules that explain the difference between a contractor and an employee.

Depending on your business type, you may also need general, product, or professional liability insurance, commercial property insurance, or home-based business insurance. The U.S. Small Business Administration has comprehensive information on the different types of insurance.

Picking the Wrong Business Name

You really put some time into your name. It’s catchy, unique, and follows all of the marketing rules. You’re so in love with your name that you print your business cards, build a website, and even drop a few thousand into a great looking sign.

If you didn’t check to make sure your business name wasn’t already in use, you may have wasted time and a whole lot of money on a name already  being used by another company. You could also be sued for copying their name, or just confuse customers who see your name and theirs on the web.  

Search the internet for the name you want to use to see if there are other companies in your area using it or something similar.  Check the U.S. Patent and Trademark Database as well as your secretary of state to make sure the name you chose hasn’t been trademarked or registered as a business name. If there’s someone else using the name you want  for the same product or service, pick another name. The same is true for a domain name. Just adding a hyphen to 

Running out of Money

Everything costs more than we think. If you’ve ever done a home improvement project, you know this reality all too well. Regardless of how meticulous you are with planning costs, you won’t think of everything and by the time you put your plan into action, your estimates may be outdated.

For all of these reasons—and reasons you haven’t thought of—you need more money to fund your startup than you think. Ideally, have 20 percent more than your budget.

Not Charging Sales Tax

Because sales tax is collected at the state level, the laws governing its collection are unique to the taxing authority. This is at both the state and local level. If you sell goods or services to others in your state, you are most likely required to include sales tax as an itemized charge.

Because state taxing authorities leave the collection of the tax to the business owner, if you don’t collect it, you still have to pay it and your state may add interest and penalties. For more information, look for a department of revenue on your state’s website.

Cutting Prices

It’s rare to see a small business open its doors and grow exponentially in a short period. Often, it takes a few years to be proud of the volume you’ve achieved. If you conducted market research and negotiated a deal with vendors of manufacturers that allowed you to charge a price people were willing to pay, don’t make drastic price cuts when you don’t see the customers running in the doors.

The problem with cutting prices is that a small business isn’t likely to have the cheapest price. You aren’t going to compete with the big box store or the competitor that has been in business much longer than you. Your edge is the experience and personal attention you give to your customer.

There are customers who only look at price when evaluating a purchase and it’s likely you won’t get their business. There are others who would rather pay more for a better purchasing experience and a relationship that gives them a go-to company when they need to purchase again. Quality customers are more important than quantity.

Not Registering Your Business

You think you’re just a small, part-time business that sells at flea markets, craft shows, and to friends. Aside from the fact that you should never see yourself as a “just,” it does not matter how small you are, you are a target for litigation. If people believe that your product caused harm, they have the legal right to file litigation against you.

Business owners know that even if they’re likely going to prevail, defending the suit can be costly. If you haven’t formed an LLC or other business entity, your family’s money and property can be seized if you lose. Providing you keep all business affairs separate from your personal finances, only the value of your business is at risk.

Registering your business is easy, read our guide on cheap llc formation. Like sales tax, business registration is done at the state level and because of that, the rules surrounding registration aren’t uniform across state lines.

Go to your Secretary of State’s website to start the process. Alternatively, a tax attorney or online business registration service can help you.


You aren’t going to avoid making mistakes. One day you’re going to look back in amazement at the decisions you made and the actions you took. In some cases, experience and learning from mistakes is the only way to learn. The best entrepreneurs know that the best lessons are found in the missteps they took. The only mistake not worth making is the one you don’t learn from.

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