The American Dream – starting and operating your own business. I don’t know of anyone that has not at one time or another thought about starting their own business. Being one’s own boss, setting your own work hours and being responsible for your own destiny draws many people to start their own business. Once the business is started is when one finds out how unprepared they really are.
These mistakes are not listed in any order. They are what I have found when consulting with small business owners.
1. How to Read Financial Statements
I have interviewed over 50 small business owners and 49 of them stated that they lacked the knowledge to be able to read and comprehend their financial statements. When asked what they look at on their Profit and Loss Statement most small business owners stated that they look three things: Total Revenue, Total Expenses and Net Profit. However, they don’t have a clue as to where these numbers come from in their accounting software. Small Business Owners should be looking at the size of their accounts receivables on their accounting software. Why? The Accounts Receivables (AR) have a direct impact on your cash flow. You should run an aging report on your AR and work on keeping your aging report under 60 days. The end result will be more cash in the bank ultimately helping to eliminate cash flow problems. (In theory that is)
Cash Flow Statement is King and most small business owners struggle keeping enough cash into the business to keep the business operating while they wait for clients to pay them. That is why working capital plays such an important part in your business. It is better to keep your AR current as the longer the accounts receivable is past due the less likely you will be in collecting them and the more likely they customers will end up on your bad debts account. Also it is imperative that small business owners deposit their checks as soon as they receive them. Let your money work for you by putting it the bank. It is better to have the money in your bank then your customers.
The one thing that I have noticed is that accountants do not counsel and train their clients. They really need to spend time helping their clients understand their financial statements and how they relate to their business. I have seen a lot of accountants get fired for failing to do so. So if your accountant is not helping you understand your financial statements then you need to consider to firing your accountant and finding one that will coach, teach and train you.
2. Working in Your Business Instead of Working On Your Business.
A typical small business owner will be the one to meet with the clients, perform the work and if time, work on other aspects of the business. He or she is so overwhelmed with all the tasks that need to get done that they forget why they started the business in the first place. This is very difficult but crucial step that needs to happen once the business hires a few employees. The Owner needs to delegate to his employees the actual work that needs to be performed. However, before he or she does so they need to have a system in place to be able to evaluate the employees’ performance to ensure that they are performing the work to your standards. They also need to ensure that the employee has the knowledge and has been trained to perform the work. It is imperative that the employees have the information needed to perform their jobs. This does not mean that you as the boss has to tell them how to perform their work. That is not the case. You need to hold the employee’s accountability to not only perform the job but what your exact expectations. This is a critical step that needs to happen and I have heard all the excuses in the books. Once the small business owner has delegated some of his responsibilities it opens the doors for the owner to work on a three-year growth plan, marketing plan and getting more customers.
I have been working with a small business owner for years and could not get him to understand that he needed to dress the part of business owner and not that of an employee. I got him into a class to help him develop a three-year growth plan and the classmates did for him what I could not do. They got him out of his work shirt and got him into a dress shirt. He later told me that he finally understood what I was talking about. This is a perfect example that small business owners need to listen to other small business owners as they most likely have experienced things that you have not.
3. No Defined Goals
It is imperative for small business owners to set effective and attainable goals for their organization. Without goals your business will go nowhere. As a small business owner you need to not only establish the goals but you must follow through to put in plan in place to achieve the goals. You will want to also set a time frame for each goal so that you do not lose your focus. There is no point in creating goal that has no end date. A goal with a time frame helps you stay on track.
Small Business Owners will also want to have milestones for each goal. What’s important is to create milestones that will help you move in the right direction and ultimately see you achieving your business goals in the long-term.
Don’t forget to track and analysis your goals so that you can see when you’re not getting the results you’re after. You may have to readjust your goals to fit your current plan. don’t be discouraged if you have to delay a goal there may be other goals that you can accomplish sooner that will make up for the goals you had to delay.
4. No Employee Accountability
In order to achieve success in your organization you need to hold employees accountable for job performance and goal achievement otherwise you are guilty of mismanage employees. Managing employee performance and how work is done is a key to your organization’s success.
It is extremely important to let give your employees the accountability to perform their jobs. What does this mean? It means that you give your employees the expectations on the outcome that is expected and let them handle the work as they see fit. However, that does not mean that you do not follow up on your employee’s to verify that they are meeting the expectations. Whatever you do don’t micromanage your employees. You need to let the employees accomplish their work the way they think makes the most sense but by micromanaging them you limit their growth.
High performing organizations entrust their employees to take ownership, cultivate accountability and create high levels of trust between all levels within the organization.
So what is ownership? Ownership is taking the initiative and doing what’s right for the business. It is about taking responsibility for the results and not passing off those responsibilities to others within the organization.
5. Understanding Your Customers
In order to fully understand you need to take the time to ask the right questions. What problems are your customers trying to solve? What questions do they have? How are your customer’s questions changing and evolving? Once you have the answers to these questions and others then you can help them by providing the solutions to these issues. Too often I see small businesses going to potential clients and telling them what they can do for them without understanding the problems that they are facing. A little homework up front can turn a potential customer into a client for life. By the way, this is something that you don’t just do once but on a continual basis as customers’ needs change and evolve and along with that their problems will also change.
6. Lack of Communication
In my mind you can never communicative too much. Communication is the key to a well-run business. I can tell you from experience that a lack of communication can and will ruin high performing teams, and employees. If employees don’t know what is expected and how they are to manage their job responsibilities your business will fall apart. It will have a direct impact on not only on your employees but also your customers and your business.
7. Unclear plan
The first step in starting your business is developing a vision and mission statement. So what is a vision statement? A vision statement defines the core ideas that give the business its direction. A vision statement can be used to guide to motivate employees. Whereas a mission statement defines the company’s culture, goals, ethics, and a standard for decision-making.
8. Not Anticipating Changes in the Markets
I have seen a number of small business not foresee changes in the market which resulted in them either going out of business or affected their business badly. For example, in 2008 when the recession hit I watched a number of small business go bankrupt. Why? Simply they did not anticipate the recession. Small Business owners got used to having sizable funds in their business accounts so they withdrew the money and spent it on new homes, new cars or trucks, ATV and RTV. Small business owners went into debt because they thought they had plenty of work and everything seemed fine. Small business owners need to keep the money in the business in case of a rainy day.
Another thing I have watched is companies get complacent with one or two revenue streams and don’t diversify. It is best to build the company up to a minimum of seven (7) revenue streams so that if something happens with one stream it does not destroy your business.
9. Get Rich Quick
I cannot tell you the number of businesses that walk through the door and want to get a large contract with a customer. It is better to build your business up slowly then try to land one large contract when you do not have any past performance. A client may not hire you if you have never worked with any other clients. They don’t want to take the risk yet small business owners think one large client and they have it made.
Many small business owners will give up on their dreams because they fail to remember that success takes time, perseverance and a little bit of luck.
10. Failing to Develop a Three Year Growth Plan
Most small business owners are so overwhelmed in the day-to-day management of their businesses that they fail to take the time to develop a growth strategy. Imagine if you discovered ways to increase your revenues by 30% or lower your expenses by 15%. What impact would that have on your business? By taking the time to implement a three-year growth strategy it could take your business to the next level.
Avoiding these mistakes will not guarantee your success. However, it is essential to understand how various choices you make will impact your business. Too many times small business owners are consumed with working in their business that they fail to take the time to work on their business. Using goals to achieve your business success is the first start. I had a company that within a six (6) month period was able to increase her revenues by 40% by setting achievable goals within a specific time frame. I hope that you will take just one ideal from this blog post and implement it in your business. I am sure you will see results.
I am hoping that you will take these common mistakes and find ways to stop them from entering into your business. These steps alone will help your business in the long run. Try setting aside one hour a day to think about your business and where you want to go in the future. Then set SMART goals to get there. Next week we will discuss what SMART goals are and how to achieve them.