The fact that business people in this country are inherently optimistic and self-confident is probably why we are the envy of the world when it comes to economic progress and opportunity.
In my own lifetime, I have witnessed this often with family members, customers, and colleagues. I have owned and operated three different businesses – two while working as a W-2 employee and one as a full-time, self-employed, Schedule C business owner.
That does not account for the yard mowing, sign making, fire wood sales, pop bottle recycling, and Grit newspaper entrepreneurial ventures of my youth. There was also the bucket and feeder calf operation, each consisting of one calf, my brother and I operated when we were growing up in Herrick.
With that said, I would like to respectively offer my observations on five common mistakes people make when starting a business – some of which I have been guilty of myself. Based on over 40 years of working with business owners, being a business owner, talking with family and friends who are business owners, these are my opinions. Though this is my list, it is not meant to be the list, but rather to start a dialogue with Marine Bank customers, my colleagues, and other business owner friends to see what their thoughts are.
In no particular order, here are five common mistakes of new businesses:
- Inadequate accounting. Staying on top of the accounting side of business is important. Common mistakes include: not monitoring results frequently enough, not understanding your true costs, insufficient resources devoted to accounting which often leads to bad data, and not appreciating the complexity of government regulations and taxes.
- Underestimating capital requirements. Many people underestimate the initial start-up expenses of business. Operating costs and how quickly receivables are collected are grossly underestimated and the timing and level of revenues are overestimated. The small stuff adds up. The economy is unpredictable. At times it’s almost unbelievable the competitive & regulatory pressures that most businesses face.
- Not setting aside enough seed corn when times are good. If you want to start your own business, you need to first realize that enjoying the life style of some of your W-2 friends may need to be subordinate to the success of your business. I have seen many businesses fail over the years because chips were taken off the table and spent. Early successes were treated as though the good times would last forever. Instead, businesses should use these chips to build up a cushion for the inevitable downturn or unexpected calamity.
- Not having a stop loss. I once met a business owner who had incurred over $200,000 in credit card debt, had negative cash flow, no reasonable way out, and no assets to show for it. Decide up front what your stop loss is and get out if you hit it.
- One business. One spouse. One house. This actually covers three different mistakes in six words. An accountant I know shares this advice with all his new professional clients. I might also add the phrase “no partners” unless you have a well written, attorney prepared, succession plan in place.
I hope this list is beneficial and insightful for anyone who is considering starting or who has recently started their own business. At times, it can be overwhelming and difficult, but with the right information, tools and people around you, your business can succeed and thrive.
What are some common of the common mistakes you’ve either experienced or seen in new businesses?
About the author:
Jay Cook, Senior Vice President of Commercial Lending
Jay Cook is uniquely qualified for his position as Senior Vice President of Commercial Lending at Marine Bank. As the former owner and operator of three businesses, he knows what it takes to execute a business plan, keep customers happy and make payroll. His entire 30 year career has been devoted to working with the owners of closely held businesses.