| Quick Answer The biggest mistakes new business owners make are: skipping a proper business plan, running out of cash, underpricing their product, trying to do everything alone, ignoring market research, hiring too quickly, and scaling before they’re ready. Most of these mistakes come down to one thing — moving fast without checking the numbers first. |
Starting a business is thrilling. The dreamer has a great idea, the entrepreneur has the drive, and the designer just whipped up an awesome logo. But, despite all your hard work, your business might not survive the first two years. “In fact, according to the Bureau of Labor Statistics, more than 18 percent of all new businesses close during the first two years” and more than half are gone by the fifth year. Don’t worry, this isn’t meant to frighten you off starting a business, but rather to educate you on the pitfalls that first time business owners generally fall into.
The following are the most common pitfalls that first-time entrepreneurs fall into in basic non-business school jargon, along with their solutions.
1. Skipping a Real Business Plan
Many new entrepreneurs make the mistake of thinking of a business plan as a chore to get over with. It’s understandable because most have no idea what exactly they’re doing and just want to get it over with. However, a business plan doesn’t need to be fifty pages long or anything like that. It should be concise and answer a few simple questions: What you’re selling, who you’re selling it to, and how you’re going to profit from it.
The fix: Write a one-page plan first. Cover your product, your target customer, your costs, and your pricing. You can always build it out later, but starting blind almost always costs more time than planning does.
2. Running Out of Cash
These are the leading causes for start-up failure, according to research performed by CB Insights and Startup Genome: “Running out of cash” is the reason why about 38% of start-ups fail, and the US Bank’s research shows that the cash flow issues were the reason why 82% of small businesses failed. New entrants to the market significantly underestimate the amount of time needed to start making a profit and the amount of money needed to keep the business running until that point.
The fix: Build a cash flow forecast before you launch, not after. Keep a cash cushion for at least three to six months of expenses. Check your cash position weekly, not just at tax time.
3. Underpricing Your Product or Service
New ownerships are prone to low pricing because they fear loss of customers to competitors. This seems logical, but it can lead to underperformance since you have to work hard to earn less profit. Additionally, it becomes difficult to increase prices after some time, hence little income.
The fix: Price based on your actual costs plus a fair profit margin, not just on what feels comfortable. Look at what competitors charge, then decide what makes your offer worth it — not just cheaper.
4. Trying to Do Everything Yourself
It’s tempting to handle the accounts, the marketing, the deliveries, and the customer emails all by yourself, especially when money is tight. But burnout is real, and mistakes creep in fast when one person is stretched across ten jobs.
The fix: Determine which tasks are exclusively yours and which you can delegate to someone else or to a software application. Even spending a few hours each week on administrative tasks, such as bookkeeping, would provide you with extra productive time to do what you need to do to grow your business.
5. Ignoring Market Research
Some new owners fall in love with their idea before checking whether anyone actually wants it. Startup Genome research puts the figure at around 35% of startups failing because there simply wasn’t enough demand for what they were selling.
The fix: Talk to real potential customers before you launch, not after. Ask what they currently do to solve the problem your business solves. If people shrug, that’s useful information — better to learn it early and cheaply than late and expensively.
6. Hiring the Wrong People Too Fast
When a business begins to grow, the tendency is to hire more people to fill the new positions. However, it is essential to consider the right candidates for the available roles instead of simply hiring to fill empty seats. According to recent 2026 research on startup businesses, failure due to teamwork issues occurs in about 23% of cases.
The fix: Slow down on hiring, even when you’re busy. Write a clear job description, check references properly, and consider a trial project before committing to a full-time hire.
7. Scaling Too Soon
Growing fast is good – but growing too quickly and not keeping up with your own success is one of the most common reasons why a seemingly unstoppable business can soon find itself in dire straits. A surge of sales, the opening of new outlets and the recruitment of thousands of new staff members all sound incredibly impressive – unless they take place before the business has properly prepared itself.
The fix: Grow one step at a time. Make sure your current operations run smoothly and profitably before you add more of anything — more products, more staff, or more locations.
8. Skipping Insurance and Legal Basics
It’s an easy corner to cut when you’re watching every pound or dollar, but skipping business insurance, proper contracts, or the right business structure can cost you far more if something goes wrong — a client dispute, an accident, or a lawsuit.
The fix: Set aside a small budget for basic legal and insurance cover from day one. A short conversation with a solicitor or accountant early on is far cheaper than a legal problem later.
Key Takeaways
- Plan before you launch — even a simple one-page plan beats no plan at all
- Cash flow problems, not bad ideas, are the leading cause of business failure
- Price for profit, not just to undercut competitors
- Get help early instead of doing everything alone
- Test demand with real customers before you scale
Frequently Asked Questions
What is the number one reason new businesses fail?
Running out of cash is consistently ranked as the top reason new businesses fail, cited in around 38% of startup failures according to CB Insights research.
How long does it typically take for a new business to become profitable?
Most small businesses take between two and three years to become profitable, which is why having enough cash reserves early on matters so much.
Should a new business owner hire staff straight away?
Not necessarily. Many advisors recommend starting lean and hiring only once there’s consistent demand that one person genuinely cannot handle alone.
Is a formal business plan really necessary for a small business?
Yes, even a simple one-page plan helps. It forces you to think through your customer, pricing, and costs before you spend money, which reduces the risk of expensive surprises later.
What percentage of small businesses fail in the first year?
Roughly 18% to 20% of new businesses close within their first two years, according to the U.S. Bureau of Labor Statistics.
Related Questions
- What are the most common cash flow mistakes small businesses make?
- How much money do you need to start a small business?
- What should be included in a basic business plan?
- How do you know if your business idea has real market demand?
- When is the right time to hire your first employee?
