“I've got to keep breathing. It'll be my worst business mistake if I don't.” – Steve Martin
Because mistakes and business are not uncommon, it is a fact that once you get started with your own business, you will make a few of your own. Mistakes are OK of course – they are normal and most of them have a solution. The trick is not to avoid making mistakes but to avoid major mistakes and learn from the ones you do make.
For small business owners, the real issue is that mistakes can cost money – money we don’t have. And the thing is, big money mistakes usually start as small money mistakes with good intentions behind them, but the business owner fails to correct them before they get too big to manage.
Here are the five most common money mistakes made by small business owners, and how to avoid them:
Not controlling overhead. I used to practice bankruptcy law. Do you want to know the number one thing people going through bankruptcy had in common? They did not control their spending. This typically happens to business owners after they’ve had a comfortable amount of money consistently flowing into the business, only to be badly hit by an abrupt drought. Because they spent so much when money was good, they neglected to prepare for the downturn that would inevitably hit (such is the nature of business cycles).
Thinking small. Conversely, some small business owners are so careful with their budget, they end up delegating every task to themselves instead of to a qualified team. It is a good entrepreneurial habit to be resourceful and self-sufficient, but it is important to know how to develop your business and continue growing.
The solution? Don’t be afraid to get the help you need and make investments to land bigger contracts.
- Not diversifying. One of the most important things you can do for your business is to have multiple profit centers, or multiple products/services that make money. Only having one main profit center is a lot like only owning one stock, which any educated investor would never dare to do. That one stock could go up . . . or it could go down. Diversification is the key to stability. That’s what having multiple profit centers does for you – it creates a financial safety net.
The solution? Think outside the box and come up with at least one new profit center.
Not incorporating. One frequent but easily correctable mistake a small business owner can make is running their business as a sole proprietorship/partnership rather than a corporate entity (an S or C corporation, or an LLC). Incorporating your business allows it to become a separate legal entity, which means that you as an individual cannot be personally liable for any problems that may arise. In short, this means that your personal assets are safe, no matter what.
The solution? Incorporate. Now.
Not separating business and personal credit. Finally, it is imperative for you to separate your personal credit from your business credit. Like incorporating, separating your business and personal credit will protect your personal credit as well as your personal wealth. This move is essential.
The solution? Create a separate business credit account altogether.
RELATED ARTICLE: How Your Personal Credit Impacts Your Business Credit
These five business money mistakes can become major financial issues if not dealt with in a timely manner. The good news: there are simple solutions for all of them.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss.
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