Finance Blog

Avoid the Top Five Mistakes Every Small Business Owner Makes

Written by Ilyce Glink on December 19, 2013 in Small Business  |   No comments

If you’ve been pondering the idea of starting a small business for some time now, you’re not alone. According to the Small Business Administration (SBA), the number of small businesses in the U.S. has increased 49 percent since 1982, and small businesses have added 8…

starting a small businessIf you’ve been pondering the idea of starting a small business for some time now, you’re not alone. According to the Small Business Administration (SBA), the number of small businesses in the U.S. has increased 49 percent since 1982, and small businesses have added 8 million new jobs since 1990.

As you start and grow your small business, keep in mind the top five mistakes small business owners make—and how you can avoid making them yourself.

Mistake 1: You have an idea, but no customers.

People sometimes believe they can run a business off an idea, but that is not enough, says Brad Farris, principal advisor at Anchor Advisors and publisher of EnMast, an online resource that provides business owners with an array of tools and advice. According to Farris, you must know your target customer base and understand your customers.

“An idea is not a business at all. An idea is an idea,” Farris says. In order to have a business, he adds, you need customers to buy into your idea and your product or service.

Farris has found that small business owners who don’t sell their businesses to a target customer base usually end up with a business that never takes off.

How to prevent it: Before you start, find your customers.

Farris knows a lot of successful entrepreneurs who sell ideas before they’ve produced the product.

“If you can get people that are actually that are willing to buy it, then you can go figure out how to do this,” Farris says. “Lots of businesses start out like that.”

As a small business owner, you’re also a salesperson, Farris explains. The sooner you come to terms with this, the faster you can start honing your sales skills and getting customers interested in your product.

Mistake 2: You don’t have a clear budget and don’t properly keep your books.

During the early stages of building a small business, Farris says that an owner usually has a good idea of where all of the money is going because, most likely, he or she is the one signing all of the checks and making the deposits. But as the business grows and more responsibilities crop up, many owners lose track.

“If you don’t have that good set of books, or a budget and some way to track your financials, then it’s really easy to no longer know where your business stands at all,” Farris says.

How to prevent it: Create a budget and track it often.

It’s important to start with a good foundation, Farris explains. Start your business with accurate bookkeeping and track your expenditures and deposits against your budget, expectations, or goals. By doing so, you’ll make sure you know your business’s financial standing at all times.

Mistake 3: Not having job descriptions in place for employees.

A business may start out with just a handful of employees, but as more people are hired, the duties of who does what may become blurry. Early on, it’s important to make sure that everyone has specific responsibilities in order to avoid any confusion that may ensue as the business expands.

“As that business grows, having everybody do everything becomes really inefficient, and you can’t really hold anybody accountable,” Farris advises. “You have to give up flexibility in order to gain accountability. And the earlier you start to implement that, the better.”

How to prevent it: Create job descriptions for all current and future positions.

Even if you have just one or two employees, create job descriptions for both current and future positions. Some workers may end up having more than one job description until more employees are hired.

“[Job descriptions] make clear what someone’s responsibilities are, what success looks like, and how you know they’re doing a good job,” Farris says.

Mistake 4: Having a desire to become friends with your employees.

When they first start a business, many small business owners may act more like peers than bosses to their employees, believing—incorrectly—that if their employees like them, those employees will want to work harder.

In many instances, this is not the case. Employees should want to do their jobs well, get results, and show improvement because they care about their work and want to increase their salaries. Often, bosses who act like peers to their employees offer little direction, leaving employees frustrated rather than motivated.

If a personal relationship is used as a substitute for accountability, this could eventually become a problem, Farris says.

“You’re going to need to make some business decisions about people’s performances or what people are getting paid,” he notes. “And that just gets a lot more complicated when you have more of a friendship or social relationship, rather than just being a professional.”

How to prevent it: Conduct a formal hiring process.

Often, small business owners may choose to hire a person they know or an acquaintance they think is going to be a good fit for the job.

“I’m always really in favor of going through a more formal hiring process, where you create a job description, post that job, [and] attract a group of candidates,” Farris advises. “That way, you’re looking at a variety of candidates, and the more candidates you look at, the more likely you are to find the best candidate.”

Mistake 5: Lack of determination.

Running a business is hard work, and you must be determined to succeed.

“You need to be willing to be going through some hard times,” warns Farris. “Sometimes, you’re not making a lot of money and there are late nights. A lot of people that start businesses aren’t really ready to do that. They haven’t really made that commitment.”

How to prevent it: Have the will to stick it out.

According to Farris, there is a high correlation between successful business owners and people who’ve been fired multiple times. That’s because, in many cases, those who’ve been fired from many jobs believe there is no going back.

“If you burn your boats, this is a one-way trip. You’re going to do whatever it takes,” he says. “You’re going to walk across hot coals, you’re going to crawl under barbed wire—that is what it takes to make it work.”

Ilyce Glink is the author of over a dozen books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In! Her nationally syndicated column, “Real Estate Matters,” appears in newspapers from coast-to-coast, and her Expert Real Estate Tips YouTube channel has nearly 4 million views. She is the Managing Editor of the Equifax Finance Blog, publisher of ThinkGlink.com, and owner of digital communications agency Think Glink Media. In addition to her WSB radio show and WGN radio contributions, she is also a frequent guest on National Public Radio. Ilyce is a frequent contributor to Yahoo and CBS News.

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