You are the master of your domain. And as a small business owner, your domain is nothing to sneeze at. So let’s make it a little easier by learning from other people’s mistakes. The following are four of the most common mistakes made by small business owners.
Mistake #1: Knowing it All
You have chosen your industry wisely. You are already an expert in your field. So much so, that you have a business dedicated to your area of expertise.
But wait a minute. Just because you are an expert in your field does not mean you are an expert in running a business.
A friend of mine who is a tradesman was recently downsized and decided to use it as an opportunity to hang his own shingle out. He figured he was on easy street: he had loads of customer contacts and referrals coming his way, and after a lifetime of perfecting his trade, he was truly an expert.
So it stands to reason that he was more than a little surprised when the business floundered and ultimately failed after some initial success. What happened?
What my friend sadly missed in the equation of setting up his own company is that there is so much more to having a business than providing the product or service in question. His lack of ability to manage the books, file taxes and understand his write-offs, meet legal requirements, and manage employees was immediately telling. On top of that, he was unable to collect receivables effectively, and his lack of ability to stay organized meant unreturned phone calls and disgruntled employees being sent on wild goose chases. Before long, he lost customers, then employees, then eventually, the entire business.
Being an expert does not mean you are a good business owner.
So do you already know it all - really? If so, great. You have circumvented common mistake number one. But if you think there may be just a few teensy things you could stand to learn about running a business, it may be in your best interest to learn these skills from an expert, instead of from the school of hard knocks.
Find a mentor, or take some training. It doesn’t have to be expensive; many local government offices offer free courses to encourage entrepreneurs.
Mistake #2: Doing it All
Being everything to everybody will make your business a ticking time bomb. Without delegation, there is a good chance you will burn out trying to do tasks that are a struggle for you, but would be a cinch for somebody else. If you manage to hang on to your sanity in the process, you may end up losing sight of why you got into business for yourself in the first place. I’m fairly certain it was not so you could spend all your days and nights working.
Effective delegation involves three steps:
1. Trust Your Employees and Contractors
Those who have trouble delegating ultimately have a hard time trusting somebody else to do the job as well as they can (I can attest to this). In some cases, an employee may indeed breach that trust by incorrectly or irresponsibly doing the task assigned. Be patient: if they do it again after you provide extra guidance, then it is time to reconsider their role.
In other cases, you may realize that your employees can do the job at hand even better than you can. By trusting them to take it on, you may be pleasantly surprised with what you find.
2. Trust Your Clients
If you pass on the management of a client account to an employee, trust that they won’t leave you. Assure your clients that you are still at the helm. In fact, to provide the service you really want to, you cannot always be the one answering the phone, sending statements, or even providing the service in question (depending on just how much you wish to delegate).
3. Make Yourself Redundant
A functional principle of good business management is to set it up so that it can run smoothly with or without you. By clearly setting out business procedures for all areas of the company, anybody can take on the job and the customer should be none the wiser.
You may not have ambitions of being the next huge conglomerate, but at some point you will take time off – be it a vacation or illness or otherwise. Your business ideally will not suffer as a result of your absence. A solid indicator of success in business is if you can step away from it and continue to enjoy a passive income from a distance.
Mistake #3: Getting Too Much, Too Soon
Expenditures commensurate with running a business are ugly. It is easy to “need” this item and that, before you even make a dime in income. In some cases the needs are legitimate. In other cases, you can creatively steer clear of spending more money than you need to.
Here are a few tips to avoid the cash crunch by buying and managing sensibly:
1. Although buying in bulk is generally a long-term frugal gesture, it could put you in a tight spot right now. If it is a stock item, confirm that there is sufficient demand for everything you buy before taking the plunge. If it is an office item, ask yourself if you can do without. Remember: cash is king. Without it, your business will be in trouble. Sinking your cash into too many paperclips – despite an eventual need for them - might be disastrous.
2. Although buying equipment outright is generally a better financial option than leasing, sometimes leasing will leave more money in your pocket. If you only need the item in question for a limited time, or if it will be obsolete at the end of the lease term, then spending less and leasing will leave more cash in the accounts, giving you more solvency. If you do have to buy outright, consider used equipment over brand new ones.
3. Avoid state-of-the-art equipment. Sure, that fancy printer does everything except walk the dog, but you will save money by buying second-hand. Liquidation auctions are a great place to acquire business equipment for pennies on the dollar.
4. Don’t be afraid to deeply discount your stock. If it is not selling, be ruthless. The longer it sits on your shelf, the longer it will take for your bills to get paid.
Mistake #4: Ignoring Tax Until Tax Time
Your year-end accounting could be a shocking experience if you have not made proper allowances throughout the year. Consider the various forms of tax, mandatory employer benefits, and anything else your accountant can come up with. (Remember mistake #2: delegate and get an accountant.)
Cash in hand does not translate directly into profits. Without making the necessary deductions along the way, you could be in for a nasty surprise.
Avoiding these 4 mistakes is not a guarantee of your business’ success, but it will help you avoid the common pitfalls that sink many small businesses.