This week we’re featuring businesses and real estate investments. Real estate looks like it’s coming back and business, at least SMART business, never left. Here’s one of my favorite blog posts that Megan Hughes did over at our joint site: SmartBusinessStupidBusinessOnline.
There’s a great classic rock song by Queen called “We are the Champions.” If you’re over a certain age, you’ve probably grown up with it and can sing it in your sleep. If you’ve never heard the song, do yourself a favor and download it.
My favorite line in the song talks about making mistakes but getting through. As a business owner, these are words to live by. You’re going to make mistakes, no matter how experienced you are or how long you’ve been at it. It’s only normal – no-one’s perfect. The key is how you deal with those mistakes. Do you learn from them, or do you make them over and over again? More importantly, are those mistakes holding your business down, or preventing it from reaching its full potential?
Over the years we’ve seen hundreds or even thousands of business owners come through our doors. We’ve seen fantastic successes, miserable failures and everything in between. And, we’ve also come to realize that there is a certain order to the universe. In other words, there are certain mistakes we see over and over again, and the business owners who make (and keep making) them are usually the ones who don’t succeed. Conversely, those business owners who learn from these mistakes typically go on to achieve some measure of success – anywhere from “okay-fine” to “out of the park home run.”
To help you learn from the mistakes of others, we’ve put together our list of the Top 5 Worst Business Mistakes, and how to survive them. You may find you’ve made one of them, two, or even all five of them. That’s okay. The trick is … are you able to learn from those mistakes?
Mistake #5 – Hiring the Wrong People
This is one that both of us have made, and have lived to regret. We’ve both hired people from the outside who didn’t work out, and people on the inside (friends and family) who didn’t work out either. And while we don’t think there’s a bullet proof solution, there are three things we’ve come to believe:
- Experience is great, but trustworthiness and a good work ethic trumps experience every time.
- Good management is essential.
- If you think something is wrong, it probably is.
Typically your first hire is going to be one of two things: someone who can do something you can (so you can do other things), or someone who can do something you can’t.
When you’re looking to replace yourself, the thing to guard against is letting go too soon. The temptation is to bring someone on board who looks like they can get the job done, and let them go to it. The biggest challenge with this that we’ve found is that people (a) don’t have the level of experience claimed, or (b) they don’t have the discipline needed to get the job done without you monitoring progress and results. You are going to have to keep a close watch in the beginning, and be ready to spend the time needed to review the work product or service being produced. Make time for that mentoring process, or you’ll regret it.
When you’re bringing in someone to do something you can’t, be extra careful. This is especially true if you’re bringing in someone to do the books and who may have access to the business finances. Ask questions. Review your financial data. Compare this month’s results to last month’s. Better yet, have your CPA or tax advisor take a look on a regular basis.
And most of all, listen to your gut, and to what your customers are saying. If clients tell you they are having trouble getting a responses, questions answered or product delivered, be wary. One client complaining may be unconnected. Hear from two or more clients, however, and you could be seeing early indicators of a pattern.
Mistake #4 – Ego-Based Decision Making
When you make decisions for your business it’s important to understand your motives. Is this good for your business, or does it make you feel good?
For example, I don’t understand the desire of companies to spend millions on naming rights for a sports arena. I don’t understand why the makers of Wrigley chewing gum, or AT&T think I’m more likely to use their products just because I’ve gone to a Cubs game or a Giants game. Heck, as far as the Giants are concerned, it’s still Pac-Bell Park to me. In fact, I had to look up what it’s called now while writing this!
Another area may be company cars. Sure, it’s a great perk to have your business pay for your car. And neither of us is immune to the desire to have a nice looking ride. But we’ve both come to understand that it’s what we do for our clients that is the key thing. Spending money on a car, when it could be spent on something that makes the business function more smoothly, isn’t a really good use of money.
That’s not to say you need to live like a pauper and always put your company first. It’s okay to have nice things. Heck, it’s part of the reason you started a business in the first place. I’m just saying take a look at what you’re spending money on, and why. Look for a balance that keeps you happy and your bottom line in check.
Mistake #3 – Lousy Record Keeping
This one will trip you up in many bad ways. I wish I could say this isn’t a mistake I ever make, but that’s not true. I have, and making this mistake has cost me.
When business is rocking, it’s so tempting to keep putting your records into a folder with the idea that you’ll get to them later. And then later turns into a couple of months. Now it’s a big job, and you find even more excuses to not do it. “I’ve got money in the bank,” you think, “I know roughly what’s coming in and what’s gone out. It’s all good.”
But it’s not. Here are just a few of the ticking time bombs that could be coming your way:
- Your CPA is hollering at you to get the information in so your tax returns can be done. She or he has to work extra hard to catch you up, and guess what! You get a bigger tax prep bill.
- You need business financing, but you can’t produce a current financial statement to back up your claim that you’re a good business risk. No loan for you this time. You’ll have to find that financing somewhere else.
- You get used to taking money out of the business as you need it, rather than paying yourself a regular salary. Late in the year you find out you’ve taken too much out of the company in profit draws, and not enough in salary. Now you’ve got two things to worry about. You’ve got extra taxes coming that you may not have enough cash to cover. Plus, you could be catching the eye of the IRS with your salary to profit draw ratio.
- How about a nice audit? Except you don’t have the records to back up your deductions. If you can’t prove where the money was spent, you’re most likely going to lose those deductions. That’s definitely going to cost you extra, in tax and in fees to the CPA or EA who represents you in front of the IRS.
Yes, record keeping ranks right up there with housework in the list of things I’d rather not be doing. But I’m working hard for myself – not the IRS or anyone else. I want to keep as much of what I make as I can, and the only way to do that is to make a little time once a week to gather up my records and get them into the hands of the folks who record the business transactions.
Mistake #2 – Undervaluing Bookkeeping Services
This is an area that leaves Diane and I both shaking our heads. Bookkeeping is probably one of the single most important functions of your business, yet we’ve lost count of the number of times people have said that it’s not worth it to hire someone, bookkeepers cost too much, and they’ll do it themselves. Except that Mistake #3 then comes into play, with all of its unintended consequences.
Unless you’re a trained bookkeeper, this doesn’t track. It will take you longer to get the same tasks done, and your chances of making a mistake are immeasurably higher. That’s just common sense. You wouldn’t expect someone off the street with no direct experience to come in and take over for you … would you? So why do you think you’ve got one over on the thousands of experienced and professional bookkeepers out there?
You don’t have to hire someone full-time to do the bookkeeping. There are plenty of service providers who will give you a flat monthly rate to look after your records. In many cases it’s far less than what you would pay a full-time or even a part-time employee.
This is probably one of the toughest mistakes to recognize and square away. But we haven’t met a business owner yet who, after making the decision and getting some help, as said “Oh my god. I miss tracking my expenses and receipts so much. I’m lost without my payroll tax reports Someone else can manage the sales and leadership of my company.” Unless maybe they’re the owners of a bookkeeping company.
Mistake #1 – Non-Responsiveness and Customer Service FAIL
I love Fail Blog. It’s one of my favorite websites. But there’s nothing funny about how customer service fails will hurt your business.
Think about it. When you get great service somewhere, you probably tell a few people. But when you get LOUSY service, you tell everyone. If you don’t believe me, google “United Breaks Guitars”.
Bad customer service is almost guaranteed to drive your customers into the arms of your competitors.
Non-responsiveness is the equal of bad customer service. It’s also the number one complaint that clients in most service-oriented businesses have. When I was coming up as a paralegal, it was always the biggest complaint I heard from clients – that the attorney they were paying wouldn’t return calls directly, or would only communicate through a staff member. Watching attorneys take clients for granted backfired more often than not. Clients became resentful and more difficult to deal with. The attorney picked up on the hostility, and, not being able or willing to deal with it, responded by pulling back even further. It was a vicious circle and no-one won.
That doesn’t mean you have to give over control of your working day to clients. There are plenty of ways to keep conversations on point and gracefully end them when you need to move on to other things. But you do need to return calls promptly. Even better, be proactive. Call or contact your client with updates before they ask. Your clients will appreciate the effort and your relationship will be enhanced. You’ll get more referrals, and, in all honesty, your bottom line will be rewarded. Happy clients are far more willing to pay their bills on time and in full than angry, resentful clients.
So that’s it. The five mistakes we feel will have the biggest negative impact on your business. You even be able to survive making one or two on a regular basis. But the more of these you make in your business, the bigger the potential for failure.
I hope you enjoyed reading this blog. If you did, why not pick up a copy of our new book, Smart Business Stupid Business. Diane and I wrote it with you, the entrepreneur business owner, in mind. It’s packed full of information to help you start, grow and maintain your business, while staying legally save and saving as much in taxes as you can. Come to www.smartbusinessstupidbusinessonline.com to find out more.