10 Common mistakes of an entrepreneur: (In no particular order)
1) Not planning. Have an idea where you want to go and then map out how you plan to get there. Write it down. Set timelines and then review. Hold yourself accountable. The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. -Proverbs 21:5
2) Not reviewing your financial statements or internal reports on a timely enough basis. This is particularly relevant when the business is doing poorly. It could be a psychological problem that you don’t want to see the bad news; however, you’re only doing more damage by not reviewing the recent past results and then analyzing.
3) Taking on too much debt. Debt is not always a bad thing, but it can obliterate a small business in a hurry. Sit down with your advisors and forecast whether your business could handle this debt even in a worst case scenario.
4) Not paying enough attention to family. If you think its expensive today to run one household, take five minutes to imagine what it would cost to run two households. That is your very real possibility if you are a workaholic. I’d recommend setting one night a week for family night. Make it a priority. Turn the BlackBerry off.
5) Throwing good money after bad. Not all businesses are always a success. Many billionaires have suffered bankruptcies and failure at one point in their life. I have clients where I have made the difficult recommendation that they should close their business and move on, or at least put their business on “probation” and resolve that they will close it if there are no imminent signs of improvement.
6) Conflict or lack of communication between various professional advisors such as lawyer, accountant, banker, broker, etc. Your accountant will very likely have the widest grasp on your business affairs but should work in concert with your other advisors. You don’t need your accountant and your banker to be best friends but you do need them to be able to work together productively and throw ideas back and forth. I expect that for my mid sized and large clients I will be going to a joint meeting every year with them and their broker/financial planner.
7) Inability to delegate or set out systems. If you are unable to delegate jobs or let your staff follow a clearly laid out system you’ll never be larger than a one-man company. Hire competent people that you trust and let them do their job. Review periodically.
8) Making an expense solely because its tax deductible. Currently the corporate tax rate in BC is 13.5% for most small businesses. If you spend $1,000 on an expense you’re going to be able to deduct that $1,000 from income and you’ve saved about $135 in income tax. It doesn’t make a lot of sense because if your business had kept the $1,000 and paid the $135 tax you’d now have $865. Instead, you have no money because you made a tax driven purchase.
9) Not keeping personal spending at a level your business can sustain. Entrepreneurs and small business owners see huge variations in monthly income and cash flows. If your business makes $120,000 per year after taxes you can’t consistently spend $10,000 on a monthly basis. What then happens when you have a slow month? Allow some cushion for a slowdown or even something so basic as if one of your large receivables took an extra couple months to pay. Also, if you’ve spent all of the business’ earnings you’ve left nothing to reinvest and grow the business. Everybody’s circumstances are different but I have seen good businesses go under because the owner personally spends way too much money and has stripped all money out of the business and eventually exhausted the business’ credit as well. Entrepreneurs should be moderate and conservative in their personal spending because they have no idea what tomorrow could bring.
10) Hiring the wrong accountant. A lot of accountants perform the basics and complete your tax returns and that’s about it. At a minimum of once a year I expect to discuss in detail with my clients the performance of their business, opportunities, possible changes, etc.