Top 3 Startup Mistakes Small Business Owners Make (and How to Avoid Them)

The best-laid plans amount to nothing when poorly implemented. Terrific business ideas often result in failure due to major mistakes made early in the process of setting up a business. Some of the most common mistakes include lack of a detailed plan, failure to address financial figures, and employee problems stemming from unfamiliarity with the proper hiring process.

Below are the top three mistakes small business owners make when they're starting their retail business, and how to best avoid them.

1. Not Putting Plans on Paper

Starting a business without a good business plan is akin to driving cross-country without a GPS (or at least a map). Plenty of high-tech and low-tech methods for creating a business plan exist. Without one, important matters fall by the wayside, many turnarounds and lane changes occur, and angry people surround you.

People commonly feel totally lost as to how to go about transforming a business concept into a tangible written business plan. The worst approach to this situation is winging it. As you're in the process of putting your business plan on paper, be sure to:

  • Ask for help from a trusted peer or colleague. They may end up mentoring you and ultimately become colleagues, or may even invest in your venture. SCORE is also a great national resource for mentoring.
  • Use every available resource. A variety of reputable resources exist to help with business planning, like the U.S. Small Business Administration. The IRS also provides insightful guidance on business planning.
  • Take it to the bank. Talk to a local banker about financing the business. Figuring out your finances along the way is a bad idea.

2. Failing to File Legal Papers

Improvising along the way may occasionally work for some lucky souls, but most start-ups must jump through some legal and regulatory hoops. Not addressing legalities at the outset and later retrofitting your business to comply at some point in the future may cost enough to put you out of business. Consider retaining an attorney to ensure proper compliance and filing.

Determine the best business structure for your situation:

  • Partnership
  • LLC (Limited Liability Company)
  • Sole proprietorship
  • Corporation
  • S Corporation

Obtain your tax ID number, also called an employer ID number, from the IRS. Choose a tax year, or annual accounting period, for income records and filing taxes, either:

  • The calendar year (January 1 through December 31)
  • A fiscal year encompassing 12 consecutive months ending on the last day of any month except December

Register the name of your business with the state. File state required documents regarding employment, social security and workers compensation. Determine any and all types of licenses and permits your business requires.

3. Ignoring the Importance of Being a Good Employer

Being the boss involves more than just having someone working for you, and goes far beyond an application and quick interview to see if you a job candidate. Part of being a good employer stems from filing the right forms and documents. You must take care from the outset of the hiring process.

Learn which questions are, and are not appropriate to ask during a job interview. Educate yourself about how to avoid discrimination and harassment suits. Know how to guide employees through what tax forms they must file, such as an I-9 (employment eligibility) and W-4 (withholding exemption).


In order to set your business up for success, it's vital that you avoid these common yet fatal mistakes. There are plenty of resources and organizations that are dedicated to helping small businesses get off the ground, so make sure to take the time to seek them out.