Common mistakes new solopreneurs make, and how to avoid them

Setting up your own business is exciting because it gives you greater control over your time, where you work, and the people you choose to work with. However, like most good things, it also has a drawback. Around 20% of new businesses fail within their first year, yet most fail because of mistakes that could have been prevented with the right measures in place from the start.

Here are some tips from Simply Business to help you avoid common mistakes and start your business on the right foot.

Prioritize your business's financial management from the start. This includes keeping up with bookkeeping and taxes from the start. Opening a bank account dedicated to your business can save you time during tax season, when you're trying to determine which expenses are business expenses and which are personal. Some new business owners don’t realize that mixing personal and business finances can weaken the separation between an LLC or corporation and its owners and, in some circumstances, put personal assets at risk. Another common mistake is ignoring self-employment tax. Unlike traditional employees, business owners may need to calculate and pay estimated quarterly taxes to the IRS to avoid penalties and an unexpected tax bill in April.

Even solo entrepreneurs should consider business insurance. Many new business owners think they don’t need a formal business structure because their businesses are small, but choosing a business structure doesn't eliminate all liability, and a single lawsuit could put their business's future at risk. The amount and types of insurance you may need depend on your business, industry and location, and some clients or contracts may require specific coverage. General liability insurance can protect against claims for on-site injuries, damage to client property and other similar claims. Professional liability insurance can cover claims related to errors, negligence and omission.

Forming an LLC can help protect your personal assets from certain business liabilities. Running a business as a sole proprietorship generally means you are personally responsible for the business’s debts and obligations. An LLC creates a legal separation between the business and its owners, which can provide liability protection in my circumstances. The cost of forming an LLC varies by state, so check your state’s requirements and fees before deciding whether it is the right structure for your business. 

You should avoid controlling every aspect of your business in the early stages. Be careful about trying to handle everything yourself just because you think it is cheaper. In the end, you’ll lose time you could have spent on activities that generate revenue.

Marketing needs to be constant. You need to scale back your marketing efforts at times, but going too long without marketing may make it harder to bring in new clients. Being your own boss comes with a unique set of challenges. You need to make time for marketing, networking and social media efforts while balancing those activities with client work. Marketing takes time away from billable work, but maintaining a steady effort can help keep new business coming in.

Avoid relying solely on the competition to set prices. Many new business owners don’t know the best strategy for pricing services and instead charge what they see competitors charging. Using this method can hurt your business in the long run. Charging too little for your services can mean earning less than what the market is willing to pay. A general rule of thumb for determining rates is to divide your annual salary goal by the number of hours you plan to work in a year. This gives you a starting point for determining what to charge for your services.

Be careful of burnout. Because you’ll be running the business yourself, you’ll need to set boundaries between your work life and personal life; otherwise, the two will blend together. Working on your business means working on your terms; however, it can also make it easier to work all the time, which can lead to burnout. Setting and maintaining boundaries can help create a healthier separation between your work and personal life.

Maintaining a sense of self-worth can be important when running a service-based business. Entrepreneurship often means striking out on your own. While it can be a rewarding experience, there’s no denying that it can get lonely. If you are experiencing this loneliness, try joining online forums geared toward entrepreneurs. You can post about your problems and interact with others who are going through the same thing. You can also share your successes. You can also join networking organizations or industry-related social media groups. While having many supporters is nice, having at least one person you can rely on is important. This person can also be a solopreneur. You can set up monthly meetings to talk about your progress and any setbacks.

This story was produced by Simply Business and reviewed and distributed by Stacker.