Many times the best lessons learned are from life experiences, here are seven business mistakes to avoid:
  1. Hiring before the money is in the bank. You don’t actually have the revenue until it actually hits the account. Promise of future revenues and contracts give off an optimistic feeling that causes many to hire before the revenue is really there. In most cases it is best to avoid this tendency.
  2. Borrowing funds when there is no immediate need just because the bank is willing to lend. Never forget that a bank is a business just like any other and banks exists to collect interest – not to directly contribute to the financials of your business. Sometimes the goals of banks and businesses do align, but usually the later gets exploited. Too much borrowing can lead to a spiraling of burdens to your business and even into your personal life. The challenge is to borrow only what is needed.
  3. Deferring payroll taxes. This is one that very few businesses have managed to completely avoid. Payroll taxes are a major responsibility and acting as the collection agent for the government is no fun. A common problem arises when the employer cuts checks but does not set aside a separate account for payroll taxes. Instead the taxes are lumped in with a general or categorically broad operating expense account. The owner then gets a false picture of cash balance and the payroll tax liability fades out of scope. A common denominator with private companies is that there is almost never enough cash on hand so playing catch-up on accrued taxes, fines, penalties, and so on is no easy task. A simple solution is to have a separate account designated only for payroll taxes or use an external payroll services.
  4. Pricing too low. Unless you are a high volume seller (i.e. Walmart), your profit margins will always be better if you sell fewer at higher prices vs. selling more units at lower prices. Do not unknowingly set your business up as a nonprofit; instead do a thorough market search and analysis on pricing for your industry to pick a price that is close to or little over the market average. As a new business, if all you have to go on is low prices, then your customers will perceive any future price increase as unfair and that customer is then lost. Develop a real brand and quality product that differentiates from the rest in order to maintain customer base and have backing for any future price increases.
  5. Permitting bill me later. Seldom is there a good reason to offer credit terms to your customers. When credit is offered your business essentially adds banking to its operations so that it is no longer solely a service or product provider. A significant reason for why businesses fail is because of uncollectable receivables and failure to manage cash. In generally a small business should avoid offering credit over cash. Inventory that doesn’t move is a curse; however, a far worse tragedy is accounts receivables that go uncollected.
  6. Banking on only one revenue source. By its pure nature, revenue contracts unless there is an active force constantly working to build new revenue streams. As witnessed in the current economic climate, diversification is vital to success. Major revenue sources come with no guarantee; thus, building alternative sources of revenue at all times will promote steady growth that will weather adversity.
  7. Hiring too much overhead. Employees who serve the roles of sales, product creation, or customer services are easily justifiable by their direct impact to the business. A challenge arises when hiring employees who are in the overhead category because those employees do not directly grow the business but serve more passive operational goals. Ideally this type of hiring should be kept as low as possible but do bear in mind that it takes the right balance of both to get the business to the next level.