Happy New Year everyone! I’m sure there are many aspiring entrepreneurs out there looking to start their own business in 2017. To help them get started, I am sharing five of the most common mistakes I have observed small business owners make.
#1 Improperly Organizing Their Business
Every business needs to be legally organized somehow, whether as a sole proprietorship, an LLC, a partnership, or some other way. My advice is to keep it simple, at least in the beginning. Consider what you are going into business to do. Are you a young guy mowing lawns on the side just to make a couple of extra bucks? Or are you a seasoned attorney looking to provide legal advice to clients? Every business is different and therefore would benefit from a different legal structure.
Often times, businesses benefit from keeping things simple in the beginning. Certain structures carry significant administrative requirements which can be time consuming and costly, outweighing the benefits they provide. Instead of picking an overkill option from day one, consider drawing out a one-year, two-year, and three-year plan so you know when it might make sense to have an elaborate business structure. You can always reorganize your business down the road without sacrificing what you have worked so hard to build. Spend the time and money to consult with a trusted attorney to help you evaluate all of your options and make the best decision.
#2 Doing Everything Themselves
All small business owners are guilty of this at some point, me included. They want complete control over everything and do everything themselves because they think no one else can do it as well; but that’s just not true. You should do as much as you can for as long as you can, but once you start to feel the pressure, you should consider hiring someone to help you out. Even using a virtual assistant or part-time administrative assistant can save you stressful hours of work that are not usually related to building your business or making you money. It’s also a wise decision to find a trusted attorney and CPA to assist you with your business, no matter how small your operation is. Face it, you don’t know everything and the more help you can get in the beginning the fewer mistakes you will make in the long-term.
#3 Not Setting Up Accounting From Day One
Not to be biased, but every small business needs an accounting system. Even if it’s just a spreadsheet in Google Sheets, it’s better than nothing at all. Preferably, every small business owner would use an accounting platform like QuickBooks Online or Wave. I commonly find that owners are too busy to even setup accounts with these services, let alone do the work. How can you make informed decisions if you don’t know the financial status of your company? You can’t. You will only get so far before you come to the realization that an accurate accounting of your business’s financial activity is a common theme of successfully run businesses. Do yourself a huge favor and start with an accounting platform from the first day. Spreadsheets are a good Band-Aid, but eventually you will need to upgrade.
#4 Misunderstanding Business Taxes
Business taxes and individual taxes are two different worlds. The rules are often completely different, and the IRS has done a stellar job at preventing taxpayers from being able to abuse the code in either world. There are circumstances where your business taxes may be just an extension of your personal taxes, but when they are not, you must file the appropriate forms on-time. Failing to file, or filing late, can bring very stiff penalties.
Regardless, the results of your business taxes are typically reported on your personal return somehow. If you ignore filing for your business you may find yourself having to amend previously filed individual returns just to report business income. In addition, many business owners get caught up with constantly trying to minimize their tax liability year-after-year and never plan, failing to consider the long-term effects of their decisions.
Questions about depreciating assets in full in their first year, reasonable salaries for the owners, and business tax credits for specific industries are just a few examples of how a tax professional can help you. Doing it yourself may not be the wisest choice and working with the right CPA may seem costly in the beginning, but if they are a true business partner, then the mistakes they prevent you from making will more than make up for their fees and likely save you more in the long run.
#5 Failing to Network/Market Properly
Networking is critical from a business development standpoint. If you fail to network or market your product or service effectively to the right audience, then you’re wasting your time and losing out on precious revenue. Take some time to read up on industry-related marketing strategies and listen to podcasts to gain insight on how you can best package and sell what you offer to the right audience. Learn from those who came before you to save time and money. Reach out to those you follow in your community for business advice. You can have a million dollar idea but if you’re in front of the wrong target audience it’ll never sell well. Remember, you are in business now and at the end of the day that also makes you a salesman. Perfect your pitch and make sure you’re spending the right amount of time with the right people.
I would love to hear what mistakes other business owners have made, or have heard about in the business community. Post your stories in the comments section below!