5 Common Mistakes Small Business Owners Make

5 common mistakes small business owners make

For every great successful business story there are plenty more stories of failures or regrets. This shouldn’t stop you from pursuing your dreams. Frequently, I’m asked what are the common mistakes small business owners make and how to avoid them. Well, there are plenty common business mistakes that should be avoided and could be avoided just by simply being informed. These mistakes can kill your business or significantly undervalue your business. Let’s see if you are making one of these common mistakes small business owners make.

Get It In Writing

I cannot say it enough. When going into business with friends or even family members it’s vital to protect yourself with an enforceable agreement. All too often business partners are excited and eager to start the business and feel that it’s unnecessary for the agreement. What will happen when the business hits hard times or if one partner wants to retire and sell their interest? Remember the huge financial meltdown? Well, there were several court cases where business valuation experts had to testify due to the partners disagreeing. U-Haul is another good example as they filed for bankruptcy because the family just couldn’t agree on certain things. Don’t be that entrepreneur caught in the middle of a business dispute without having your rights secured. There are plenty of online resources to help guide you or seek a lawyer for professional advice in order to avoid making this common business mistake.

Short-Term Thinking Could Cost You BIG Long-Term

Everybody loves saving money; however, you must ask yourself if you implement this short-term decision what will be the long-term effect? Rather saving a few dollars today think about sustainable growth and the potential business value of tomorrow. It’s important to have a strong business relationship with your accountant as depending on your short and long-term goals they will need to proactively advise you on the multiple future outcomes of today’s business decisions. What do I mean? Well, some people want to always be extremely aggressive in driving their business income down so they pay less tax. Some businesses acquire a lot of assets or spend monies in other avenues, which will allow them to take advantage of numerous tax benefits. You must remember that the overall cash flow of the business plays a significant role on the overall business value. Is your company a cash cow, star, dog or question mark? It’s always better to be safe than sorry and ask your CPA or business consultant as this is a common business mistake a lot entrepreneurs make.

Protect Your Rights with NDA, Patents and/or Trademarks

Be careful sharing your ideas with anybody without having a non-disclosure agreement (NDA), patent and/or trademarks. Patent lawsuits are higher than ever, such as, Apple vs Samsung, Samsung vs Sharp and Microsoft vs Salesfore.com.  If you believe you have a unique idea or product and want to secure it then get the proper documents prior to speaking with anyone. I ran into a situation in college where a fellow student had a great idea and asked his professor for advice. The professor stole his idea and made it become a reality. A non-disclosure agreement was never signed or anything. Needless to say, my fellow colleague was not happy. I tried to warn him about this common mistake small business owners make, but he trusted his professor. Not a good outcome.

Know Your Financing Options

Overall, every business is funded by debt or equity. Choosing the right option could be huge on the overall business evaluation. It’s vital for a business not to smother its profits with high interest rates and debt repayments or give away too much ownership control. It’s common for business owners needing financing for operations and for anticipated future growth so don’t deter from financing. There are several calculations that can be done to see how much interest the company has to pay for every dollar it finances, thus allowing you to make solid business decisions.

Are You Audit Worthy?

All too often I see entrepreneurs not keeping the proper record retention or try cutting costs by not having a seasoned accountant render their bookkeeping. What they don’t realize is having clean books and proper record retention will save them in the long run. Anybody can key numbers into a system so be cautious on who you choose. Your books deserve the attention to detail so you and your accountant can discuss what picture your numbers paint. In order to make proper business decisions you need clean and accurate information to do so. If you are not sure what is right for you, then feel free to contact our office. There are some systems that are free and user friendly.   Don’t be one of the many entrepreneurs out there and make one of these common small business owner mistakes. Don’t be afraid to take some risk and invest in your business. Think of your business journey as a series of forks in the road and your trusted CPA can help you navigate the roads. We would love to meet with you for your FREE Discovery Meeting. Call now at 877-455-3055 to meet with one our CPA’s.

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