Top Five Mistakes for Small Business Owners to Avoid

Article written by Eric Bank

Starting a small business can be rewarding, but also challenging. Sometimes, entrepreneurial spirit is great for launching a company but not so good for the day-to-day running of the business. But it doesn't have to be that way. Here are five common mistakes that new owners make -- avoid these and you'll have a much better chance of long-term success.

1.  Poor Planning. You can avoid a lot of grief by creating a business plan and budget for the first year of operation. A business plan indicates to investors and vendors that you have seriously thought about your enterprise, including finances, marketing, selling, organizational policies and operational procedures. The budget proves your ability to project numbers and make reasonable assumptions. You'll have to address issues of compensation, taxes, buying inventory and paying interest, among others.
2. Poor Accounting Procedures: Bookkeeping can't wait for a convenient time. You must keep your books up to date and accurate. Without precise information, you are likely to make mistakes that can cost your business dearly. Poor accounting procedures can lead to unpaid bills, uncollected revenues, cash shortages, illiquidity and even bankruptcy. If accounting isn't your thing, by all means hire a bookkeeper or an accounting service to keep your books in good order. The service is worth its weight in gold, and it's tax-deductible.
3. Poor Internal Controls: Even if you have a bookkeeper, you must also create internal controls so that no one employee can hide mistakes or embezzle. Either you or a trusted partner must periodically inspect primary financial documents and make sure they match your financial reporting. These documents include cancelled checks, bank statements, purchase orders and bills. Always sign all check personally. You can use an outside service to reconcile and audit your books, but you should also remain personally involved in creating and maintaining internal controls.
4. Poor Delegation Skills: Some entrepreneurs are, unfortunately, megalomaniacs. They find it impossible to delegate the smallest task, habitually micro-manage every employee and generally make the staff's working lives a nightmare. Inevitably, your product or service will suffer, your employees will turn surly or quit, and you'll be spread so thin that things will fall between the cracks. You can get a grip by replacing this anti-social behavior with good communication and delegation skills. Regularly meet with and talk to your staff, ask for updates (but not six times a day), and establish procedures by which you can judge whether the company is performing well. Use outside vendors as needed to supplement your staff.
5. Poor Involvement: The opposite of #4 is a detached owner who loses control of the business out of neglect. Just as you can't do everything yourself, you can't delegate all the work, because your vision will be quickly lost. Other employees might be more interested in exploiting the business for their own purposes than in following your agenda. You must find the right balance between the two extremes of involvement and lack thereof. Seek the assistance of outside lawyers, accountants and financial advisors to help you evaluate how well you are running your business and be open to their suggestions.