Biggest Mistakes Made by New Businesses


According to a recent Gallup poll, 50% of new U.S. companies fail within their first five years. Starting a business is a path littered with pitfalls for entrepreneurs, and business owners are not careful, they could find years of hard work and money flushed down the drain. If you are a new business owner, you should consult with a trusted and seasoned counsel who can advise you on these common pitfalls and help you navigate the complex legal waters involved with starting your own business. Richard J. Arendt has provided clients in the greater Chicagoland area with expert guidance on how to avoid costly mistakes in business ownership.

These biggest mistakes include:

  • Failing to develop a business plan and a marketing plan. Failing to plan is planning to fail. Business owners who launch their businesses without a sound business plan that outlines the objectives of the business and how the owner envisions the business will grow don’t have guiding principles that facilitate long-term success. Hand in hand with a business plan is a marketing plan that should identify customer markets and outline a plan for appealing to those customers, which should bring in new business.
  • Choosing an ownership structure that doesn’t work for the business. Choosing the right ownership structure should be part of the development of a business plan. This decision entails factors such as the best way of limiting liability, minimizing taxation, and the costs of forming an entity and ongoing administration, including recordkeeping and paperwork. The unique needs of the business and the personal needs of the owner or owners should also lead to a consideration of whether the structure maximizes flexibility.
  • Failing to protect personal assets. Protecting personal assets is also a common consideration of business planning and is a large part of the decision on which ownership structure will work best. Protecting personal assets from liability may involve purchasing liability insurance, or structuring a business as a corporation or an LLC so that liability will be directed to that entity, not the owner.
  • Failing to manage employees properly. Small companies with employees often make the mistake of failing to implement sound management policies in employee manuals to guide the conduct of their employees. Lawsuits from former employees may result in costly litigation that a new business often does not have the resources to defend against.
  • Working with clients or vendors without well-drafted contracts in place. Contracts are meant to protect parties from the unexpected. New business owners are often enthusiastic with starting the business or getting a first major customer that they begin the transaction without a contract in place. Without a contract, vendors and clients cannot be relied upon, and handshake agreements are simply unenforceable against another party. Businesses at the outset should develop a few standard contracts with the help of an experienced attorney that may be adjusted to fit specific situations that the business will encounter. Importantly, any contract entered into should be reviewed carefully prior to execution.

Lastly, companies often fail because their owners do not seek legal advice prior to making decisions regarding the newly formed company that may have costly legal implications. If you are a new business owner, the Law Office of Richard J. Arendt can help you. Dedicated to providing seasoned representation in the greater Chicagoland area, including Boone, Cook, Du Page, Kane, McHenry, Lake, and Will counties, Richard J. Arendt has decades of experience helping business owners survive their first few years by protecting them from costly legal mistakes.

Leave a Comment