Starting a business is a risky enterprise, whether it’s a startup company or a hobby you turned into another source of income. Economic considerations and poor decision-making can lead to small businesses closing down before they even make it through their first year.

A study of the failure rate of small businesses between 2010 and 2019 showed that approximately 20 percent of these enterprises close in their first year. Small businesses fail for any number of reasons, from no one needing their products to not having enough money. But these failures almost always stem from the owner making a serious mistake.

Here are several of the most common mistakes small business owners make that can jeopardize the future of their enterprise. Learn how these mistakes can cost you and what you can do to avoid them.


1. Before you invest a single cent into your business or ask other people to do so, you have to be sure you are starting it for the right reasons. If you’re only opening an online-based bakery because you have seen a lot of people on Instagram doing it, you should reconsider your business plan. You should also not start a business just because someone you know did the same thing. Some of these people have spent months or even years planning their business. Blindly following them will only end in disaster.

How to Avoid This:

Your motivations for starting your business can affect how you manage it. Do your groundwork before coming up with a business idea. Ask yourself what your interests are and see if there’s room in the market for a new company or product.

2. As a new business owner, you’ll need plenty of help from a lot of people. However, not everyone you meet offline and online will have your business’s best interests at heart. Cybercriminals can attempt to lure you with authoritative-sounding emails. Cyberattacks can cost a small business an average of $200,000 and sink your company. Other people can try to steal industry secrets from you and your employees.

How to Avoid This:

Employ experts who can spot deceptive individuals from a mile away. Reliable services for fraud detection can help you winnow out fraudulent applicants and protect your software from malicious programs. You should also be very critical of emails and communications. If someone is offering something that’s too good to be true, it probably is.

3. Your employees are the foundation of your business and you need to ensure they’re effective and reliable. Poor hires can come from sloppy hiring procedures or favoritism. For example, you may breeze through the interview portion of the hiring process because you have other things to do. Or you could hire a friend or a relative because you know them. But if you don’t consider their qualifications or capabilities, you’re putting your fledgling business at risk.

How to Avoid This:

Conduct thorough onboarding processes. Make time to interview each prospective member of your company, especially if you’re running a small operation. A new employee needs to have the right skills and attitude to integrate well with your business. If you’re thinking of hiring a friend or relative, check if their skills and behavior are up to par with what you want for your company. Don’t be afraid to let them down if they don’t make the cut.

4. Do you have a radical business idea? Maybe a groundbreaking new product you’d like to develop and sell? Before you start combing for investors, ensure that your prospective product or service has a target market. Not having an adequate or existing market is the reason 42 percent of small businesses close. Even if your new business involves an established service or product, there may not be room for it anymore.

How to Avoid This:

Conduct thorough market research before starting your business. Identify which demographic is most likely to buy your product and ask them if they would use it. When you’re thinking of opening a new shop, canvass the neighborhood and see how many other stores in the area are offering what you’re planning on selling. For example, opening another Korean barbecue restaurant in an area that already has three is not a safe business decision.

Starting a business doesn’t have to be a minefield of mistakes. Being sensible and taking good advice can help you steer away from disaster and help your new business become a success. With the right information and good judgment, your business can make it past its first and most turbulent months.