~by Haley Lynn Gray~
What I’ve learned in business is that there will be plenty of failures and a few successes. Sometimes the greatest success is learning from the failures, because those will frequently teach us the most profound lessons.
I think that because I have such a fabulous education in business, I was able to avoid a number of business mistakes. But I made others because I never learned about those in school. If only it were that easy.
Here are some common business mistakes … I hope you can learn from them as I did.
1. Think carefully when choosing a business partner. If you do end up with one, make sure you have solid, legal agreements in place about each partner’s responsibilities within the business and who will pay for what and when they will pay for it. Also decide what happens if one of you wants to leave the business and under what conditions that they can leave. Every new business usually starts as a honeymoon period, but when things get difficult or uncomfortable, or even if they go incredibly well, someone is inevitably going to want or need to leave. Negotiate those terms and conditions before you start doing business.
In my case, there’s no horrible story to tell. My former business partner is really an amazing woman and still a dear friend. But we made a mistake. When she was no longer involved in day-to-day operations and had no idea what was going on, we didn’t realize that she needed to be done and leave the company.
2. Watch those personal guarantees. You incorporate your business to separate your personal and business life, but this can backfire on you. Unfortunately, banks will often want you to sign a personal guarantee for any loans your business has. Landlords may want you to sign a personal guarantee, and may insist on it. This can expose you and your family to liabilities if you aren’t careful. We learned a pretty nasty lesson from a company credit card after I sold one of my businesses. Instead of the bank being willing to negotiate the balance down or have my business partner (a minority owner) pay a minority amount, they essentially forced her to pay the full amount due.
Not only do you need to watch for a personal guarantee, but you also need to watch for what KIND of personal guarantee it is. Make sure they can’t put a lien on your home or anything that may cause you to lose everything (if you aren’t careful).
3. Hire only the employees and contractors you desperately need. Over hiring and paying too much in salaries cost me a LOT of money. That was my mistake. Once you hire someone, if they aren’t 150% subscribed, they will tend to do less and less work, even while trying to convince you that they are fully engaged. They’ll come in late and leave early if they think you aren’t watching. Sales staff may not do the work they’ve been hired to do at all — and may spend a tiny fraction of the hours they are supposed to be spending in sales, actually… Doing sales!
4. Be a strict pain in the butt with your employees. It’s your money; spend it wisely. If you have someone who doesn’t show up and doesn’t perform well, then let them go. If they are awesome, reward them appropriately. You won’t know until they’ve started working for you, unfortunately, so make sure you fire quickly if you need to. Many times you’ll find people who come in late, surf the internet, talk on the phone, take long lunches, and leave early. Then they get upset when you track those things.
I held onto people I should have fired long before. I did this despite being advised otherwise and knowing I was being too loyal to people who weren’t loyal to me or the company.
5. You need processes and procedures, in addition to customers. Don’t underestimate how much marketing you will need to do to grow your business in the beginning. People will want to do business with you, so make sure you are available. I tried to hire sales people while focusing on the operations. I learned that you can usually hire for operations more easily than you can hire for sales.
6. Watch how and where you spend money to grow your business. It can be seductive to spend money on advertising, after all, money in yields money out, right? Well, sometimes. Not always. I invested heavily in certain things that did not yield any clients. The most obvious ways of growing your business don’t always work according to plan. It can be incredibly tempting to try to buy your way into getting lots of customers instead of focusing on the face to face marketing piece.
7. Pay your taxes to the IRS on time. The IRS gets really testy if you don’t pay your payroll taxes on time. Their customer service sucks and they want their money, like now. This is one debt you can’t ever get out of, and it can bankrupt your company.
8. Be wary of all people who come bearing money. Factoring Loans and other high interest loans can seem like a godsend to keep your business going just when you need it. The loan providers will set up auto drafts on your accounts and pull the money out when you least need them to pull it. They can also use some very heavy handed tactics to collect money, which can technically be illegal in some states. I had one case in which I backed out of a loan because they misstated the interest rate. I was told 10%, and it was actually just over 40% when I read the fine print. Oh, and yes, always, always read the fine print.
9. Never keep your personal and business accounts at the same bank. I had a friend who learned this one the hard way. If the business is late on a payment for anything, then the bank might help itself to your personal accounts. That caused her a great deal of pain when trying to pay her mortgage after the bank had just sucked all of the available cash out of her account.
10. Separate your personal and business finances. It can be very, very difficult to separate them if you don’t keep track of expenses, and you may lose a great deal of your deductions if you don’t track the expenses. Separate your personal and business finances as far from one another as you possibly can.
Accountants often have it right when they suggest being as conservative in your business as possible. I’ve made most of these mistakes or have seen them made. It is funny how, despite the best possible education, it is still quite easy to make mistakes and do them with a great deal of flair.
Meet the Author: Haley Lynn Gray
Haley helps female entrepreneurs create a strategy plan for their businesses – so they can make enough money to spend quality time with their family, pay for their children’s dance lessons, pay bills – and not worry about where the next client is coming from.
Haley is a serial entrepreneur and founder of Leadership Girl. She helps other entrepreneurs build their businesses by sharing the benefits of her business education and experience through Business Coaching.
Whether you want to get a new business off the ground or expand an existing business, Haley can assist you.
Connect with Haley:
- Work with Haley: http://leadershipgirl.com/work-with-haley/
- Facebook Page: https://www.facebook.com/Leadershipgirl
- LinkedIn: https://www.linkedin.com/in/haleygray