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10 Mistakes Small Business Owners Need To Avoid
Being successful in business is a delicate juggling act of doing the right thing while simultaneously avoiding costly mistakes.
Unfortunately, many small business owners--especially new business owners-- make simple mistakes that could easily be avoided with a little diligence and some inside knowledge.
Here's a list of ten of the more common errors I've observed during my years working with small business owners:
1. THEY UNDERCHARGE
When first starting out, many business owners tend to undercharge for what they sell. There are two reasons for this.
First, they don't know how to correctly set an effective price, and second they think they need to have the lowest price in order to get business.
Both circumstances result in low profits and poor cash flow. These "bad habits" frequently continue even after the business has gone through its start-up phase.
In order to survive in business, it's crucial that a business owner receive maximum reward for his or her efforts.
From my experience, many small business owners would easily survive--and be much better off financially--with a well thought out and properly implemented price increase.
2. THEY CONCENTRATE EXCLUSIVELY ON SALES
When first starting out or having a background in marketing, many business owners and self-employed individuals see only one line on their profit-and-loss statement: SALES!
They think the more sales they have, the bigger and better their business will be.
Nothing could be further from the truth!
While no one can deny the benefits of having a boatload of business, focusing exclusively on sales is oftentimes a recipe for disaster. A "more sales only" mentality and growing too quickly are classic examples of how a business can fail during its peak growth phase.
Believe me, it happens.
Running and operating a successful business doesn't require exceptional talent, but it does require vital and basic business skills covering a wide range of areas.
To succeed in business you must focus on your WHOLE business, not just parts of it.
3. THEY EXTEND CREDIT TOO EASILY
In an effort to increase revenues and grow rapidly, many business owners extend credit to customers who pay late, or worse, never pay at all.
While nearly all businesses have their share of late or uncollectible accounts, it's important to minimize bad debts and slow paying customers by reviewing credit policies and picking and choosing customers wisely.
If selling on credit, be sure to perform credit checks on all of your customers. Also, make sure your customers completely understand and agree to your payment terms BEFORE doing business with them. Many slow paying customers like to take advantage of ambiguities in payment policies.
While it may be attractive to take on as much business as possible--especially when bills need to get paid--keep in mind that it's better to have no business than to give away free business.
4. THEY THINK ABOUT TAXES AFTER THE YEAR IS OVER
Taxes are a subject many owners put off until the last minute. This procrastination costs money in the form of paying more tax than is required.
One of the reasons business owners fail in their tax strategies--besides not having any--is because they neglect to seek knowledge and advice BEFORE they engage in any activity that has a taxable effect.
If you're serious about saving money on taxes, learn to consider tax ramifications BEFORE you act. Planning is the key to reducing the amount of taxes you pay each year.
Since taxes represent a large expense in any business, it's absolutely essential that you do everything possible to minimize the cost. This means getting a grip on your taxes BEFORE and DURING the tax year, not after.
5. THEY DON'T HAVE A PLAN OF ATTACK
You've heard the saying, "If you fail to plan, you plan to fail."
It amazes me how many business owners and self-employed individuals don't have clear, concise and written goals. And the goals they do have are frequently vague and imprecise.
Would a homebuilder build a house without a blueprint?
Certainly not.
Then why build a business without one?
If you don't have some idea of the overall picture or end result, your efforts will be average at best. Its not that average is necessarily a bad thing; it's just that I feel many owners are capable of even greater success. More than they originally imagine.
6. THEY DON'T KNOW HOW TO HIRE AND KEEP GOOD EMPLOYEES
A common problem business owners have is their inability to effectively manage their employees. Not only do they make hiring mistakes, but they also don't know how to keep good workers.
Besides the owner, a good employee can be a company's most valuable asset. In fact, in a small business employees can actually make or break the business. That's why it's essential that you hire the right person for the job.
When hiring an employee, think real hard about whom it is that you're actually hiring. An employee's lifestyle is definitely going to affect their performance on the job.
Likewise, if you want to keep good employees, be sure you have a system in place that rewards their efforts.
7. THEY DON'T PROVIDE OUTSTANDING CUSTOMER SERVICE
The fact is any business can provide good customer service. But if you want to build a highly successful business, make sure your customer service is "beyond industry standards".
While numerous factors are responsible for success, by far the easiest way to expand your business is to provide customers with customer service that is "beyond industry Standards". Doing so is like planting money seeds that will grow and yield basketfuls of profit.
Sadly, many business owners don't provide the level of service that is frequently the difference between mediocrity and success.
8. THEY'RE ECONOMICALLY DEPENDENT ON A SMALL GROUP OF CUSTOMERS
The easiest way to give away financial control of your company is to grow your business on a small group of customers. While this may look tempting and free of hassles at first, relying on a small group of customers is not a good thing and it should be avoided at all costs.
Unfortunately, many business owners did just that and paid the price for it when the customers stopped doing business with them.
9. THEY LET EMOTIONS GET IN THE WAY OF SOUND BUSINESS DECISIONS
Some people get consumed with their emotions and frequently make business decisions for the wrong reasons.
Examples of this include spending money on sexy, expensive advertising just to boast or beat their chest. Other examples include keeping unproductive employees because they feel sorry for them, or going out and spending crucial capital on equipment that isn't needed yet.
To make good decisions, make sure you rely on the facts and sound business judgment.
10. THEY FAIL TO DEVELOP AS LEADERS AND MANAGERS
Many business owners limit the amount of success they attain by failing to continue learning. As I said earlier, running and managing a successful business doesn't require exceptional talent, but it does require basic business knowledge. Without this knowledge you're at a substantial disadvantage.
You should do everything possible to learn whatever you can about the complexities and nuances of your industry or profession--and not just once, but regularly.
Of the many things I've learned from highly successful business owners, one thing stands out: they never quit learning about their business.
(c) 2004, Alex Goumakos CPA, Alex Goumakos CPA is the author of "Gold Mine Tactics: The Business Owner's Success Manual".
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