11 Risks Your Micro Startup Should Be Aware of Within Its First Two Years

Written by MicroStartups

A micro startup business runs on minimal staff and budget. These small companies will often only have one or two employees and may start out of someone’s home or garage. The dream is for the startup to take off and one day be a multimillion-dollar corporation. However, in the first two years, your business may face some risks and struggles before launching into something bigger and more successful than you imagined.

Approximately 30.2 million companies in the United States are classified as small businesses. While not all of them are micros, a percentage are. All startups face some challenges, but when you only have a couple of employees at best, there are some unique challenges you must overcome. Here are 11 risks to look out for and how to overcome them.

Risk No. 1: Growing Too Fast

Microbusinesses, in particular, have trouble when they grow too quickly. There aren’t enough employees to handle the increased work, and hiring new ones isn’t always a possibility due to cash flow. The last thing you want is a reputation for taking too long to deliver products or services.

This is a difficult risk because you want to grow, but you have to manage that growth. If you notice you’re having trouble keeping up, scale back on marketing and seeking new customers until you can afford to bring on another employee or two. If you just hired someone, ramp up the marketing efforts.

Risk No. 2: Lacking Security Measures

As a tiny business, data security may not be something you’ve worried about yet. Since many people run their microbusinesses out of their homes, one area of concern is smart speakers and devices. A recent internet security report found the Internet of Things (IoT) was a crucial entry point for hackers.

When looking at security, pay attention not only to your website and any customer data you store but also to weaknesses in your home computer network. Spend as much as you can afford on virus protection and security.

Risk No. 3: Struggling With Management

Is your small business something your family started together? People often struggle with leadership in family-owned companies. Who is in charge and who has the final say? Internal arguments create all types of problems and may send the wrong signal to potential clients.

Ideally, get an agreement in writing before the business starts about who is in charge and how decisions are made. If you already jumped into a startup without one, get all involved parties to sit down and discuss the issue. Come to a consensus about how decisions are made and what happens if one or more people want out of the company.

Risk No. 4: Handling Legal Battles

Your micro startup is ticking along nicely and starting to see a profit when your product fails or a big order goes astray. Your customer isn’t happy and is threatening legal action. One lawsuit might destroy your business and, if you aren’t protected under corporate laws, they may even come after your personal possessions.

Consult with lawyers specializing in product liability and find out how best to protect yourself in a worst-case scenario. Test your products as thoroughly as possible and follow up immediately upon any complaints from consumers.

Risk No. 5: Suffering From Losses

If you run a retail establishment, there is a risk of people stealing your products or things getting damaged. This costs businesses money, but for a small startup, the losses may be devastating. Even if you only run your company out of your home, there is a risk that employees might steal from you and result in product losses.

Take as many precautions as possible, such as limiting entry and exit to one door and placing the register near the front of the store. This allows you to see everyone coming and going and ensure no one is walking away with your merchandise. Traditional advice says to put the checkout at the back of the store, but unless you can afford expensive product tracking and security equipment, this may not be feasible.

Risk No. 6: Burning Out

As a solopreneur, everything falls on you. You may struggle to find time away from work to refresh your mind and rest. In a recent survey, 85 percent of small-business owners admitted they take two weeks or less of vacation. Most remain connected to work even when taking time off via their phones, laptops and other devices.

Be deliberate about taking time off for rest and relaxation. Not only should you take a vacation every year, but you also should reserve time in the evenings and at least one weekend day for your family and yourself. It might seem impossible with so much work looming over you, but if you take a break, you’ll come back refreshed and better able to tackle the job.

Risk No. 7: Finding Business Assistance

Large corporations have the advantage of other business owners as mentors and access to the most expensive training courses. Microbusinesses might struggle to find the same information and assistance with their goals and marketing plans. Few very small-business owners can afford to attend an expensive conference where they might gain the knowledge needed to thrive.

At the same time, studies show that 80 percent of small businesses that receive assistance go on to have success in the first two years. The solution? Seek help from your local Small Business Administration (SBA) office. It can help with a marketing plan and even workshops. Join your local chamber of commerce, where you’ll likely find networking opportunities. Take online courses as you can afford them to expand your knowledge.

Risk No. 8: Depending Upon One Client

If you have one main client who makes up half of your income, you’re at risk. If they leave or run into cash flow issues, your entire business is in jeopardy.

While it’s great to have a cornerstone client or two that bring in the big bucks, you must balance them with smaller ones who give you steady income. Then, if you lose your top customer, you’ll still bring in money and avoid bankruptcy until you replace them with another.

Risk No. 9: Managing Cash Flow

Cash flow is one of the biggest problems that all small businesses face. Clients don’t pay invoices on time, business slows and you’ve made commitments. If you’re selling a product, you may have a large order come in that you can’t fill because you don’t have the funds to produce it.

Good money management is one of the keys to appropriate cash flow. When money rolls in, stick to your budget and set some of it aside for when business slows back down. If you have a large order you can’t fill, ask for half of the payment upfront to cover the cost of manufacturing or seek an angel investor to help you get past the hurdle.

Risk No. 10: Losing Quality as You Grow

As your business grows in the first two years, it’s easy to rush around trying to grasp the opportunities but forget about the quality of your product and your customer service. However, the quality may be why you’re seeing success in the first place, so if it fails, then your business might too.

Solve any quality issues by putting some quality control measures in place. Personally test your product to make sure it functions properly. Get feedback from your customers about the quality and any future improvements they’d welcome.

Risk No. 11: Paying Business Taxes

As a microbusiness owner, you likely are set up as a sole proprietorship or LLC. You’ll have to pay taxes, even if you’re the only employee. First, if you collect taxes on products, you’ll have to send the sales tax to your state. However, you’ll also have to pay income tax on your profits. If you’re running your business as a sole proprietor, you’ll also pay a self-employment tax.

Consult a professional if you don’t fully understand both federal and state tax codes. Set aside money in a separate account, so you’ll have enough to pay quarterly taxes. Estimate as close as possible to what you’ll owe to avoid a big tax bill and penalties at the end of the year.

Risks and Rewards

Even though there are risks as a microbusiness owner, the rewards are working for yourself and building something that belongs to you alone. The risks might seem scary at first, but if you’re aware of them and take steps to overcome them, they won’t impact your startup. You’ll grow at a steady pace and find success in your first two years of operation.

Author Bio: Lexie is a UX content strategist and web designer. She enjoys copious amounts of coffee (with a dash of milk) and walking her goldendoodle. Subscribe to her design blog, Design Roast, and follow her on Twitter @lexieludesigner.

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