Thursday, June 21, 2007

Mistakes that Kill Small Business

Another interesting list I found on  As an accountant, I'll try not to be offended by Mistake #3...just kidding...accounting controls are the key.

Bottom Line's Business Secrets
Dumb Mistakes that Kill Small Businesses And what you can do instead Ruth King Published: July 1, 2007 Y ou have a strong work ethic, a solid business plan and a great reputation in your field. Your small business ought to be a success. Yet a single seemingly minor mistake might be all it takes to make a thriving young company go belly up. Fatal small business mistakes often can be avoided, but only by business owners who recognize the danger in time. Common errors that can doom small companies...
Mistake 1: Relying too much on one customer. New businesses sometimes start out with just one or two clients. When these clients provide all the work the business can handle, the customer list doesn’t expand. After all, why search for new clients when the dance card is already full? However, short client lists increase the odds of disaster. Small companies often collapse when a customer that accounts for 50% to 100% of their income decides to use another supplier... eliminate a product line... or handle a previously outsourced function in-house. What to do: Continue to search for additional customers even if one or two big clients already give you all the work your business can handle. If necessary, add an employee. Avoid letting any customer make up more than 25% of your revenue.

Mistake 2: Losing key employees to competitors. A small business might have only a few employees. It can be a crippling blow if one or two of the best quit to join a rival. Not only are the company’s most productive people now working for the other team, but the owner often must do the work that these former employees would have done. On top of that, he/she has to hire and train replacements, all of which can distract him from leading the company. The departed employees even might take some of the company’s best customers with them. Example: Several top-producing employees of a small Nevada mortgage brokerage company were hired away by a new rival that was attempting to enter the sector. The mortgage brokerage owner could not find adequate replacements and was forced to scale back his operations despite surging demand. What to do: To keep your employees loyal, do everything in your power to keep them happy. Remember to praise employees and thank them for their efforts. Keep the attitude of the office upbeat. An enjoyable working environment is at least as important for employee retention as hefty salaries.

Mistake 3: Trusting a bookkeeper too much. Even an honest-seeming bookkeeper could be an embezzler. Example: A Georgia contracting company hired a grandmotherly bookkeeper whom everyone loved -- until they learned that she had cooked the books and forged $100,000 in checks. What to do: Maintain personal control over your company’s money whenever possible. Do not give a bookkeeper check-signing privileges. Have bank statements sent to your home so you see them before your employees do. Each quarter, print out lists of receivables and payables and scan them for unusual entries. Divide any financial tasks that you can’t handle yourself among several employees so no one employee can steal without another noticing a problem.

Mistake 4: Turning a hobby into a business without understanding what’s involved. Coin collectors often dream of owning coin shops... skilled amateur photographers hope to open their own studios. Unfortunately, many people turn their hobbies into small businesses without first considering the time and money required, the risks and their lack of practical business skills. Example: A woman interested in Native American jewelry opened two jewelry stores -- one in Colorado, the other in Arizona. She had a great eye for jewelry, but she had no knowledge of the local markets... didn’t know how to write a business plan... and had never worked in retail. Both shops failed. What to do: Before launching your business, work for someone who has a comparable business so you can learn about the field. (This business either should be a few towns removed from where you intend to start your business or have a slightly different focus so that you won’t later be in direct competition.) Try to master mundane back-office tasks that are unfamiliar to you, such as balancing the books and negotiating with distributors and suppliers. To reduce your risk, try to launch your business part-time before leaving your current job. This means working very hard for a while, but it’s better than taking the leap without a safety net.

Mistake 5: Having a relationship with just one bank. Most small businesses depend on loans and lines of credit to get them off the ground and avoid cash-flow shortfalls. When a business builds a relationship with only one bank, that credit can dry up if the bank’s policies or management change. What to do: Try to do business with at least two local banks so they get to know you and believe in your company.

Mistake 6: Thinking you’ll never get sick. A long-term health problem, even if it is not life-threatening, could mean the demise of your business, particularly if it is a sole proprietorship. Example: A Georgia hairdresser broke his arm in a motorcycle accident and could not cut hair for more than a month. He contracted with another hairdresser to cut his clients’ hair for the time his arm was in a cast. Had his customers gone elsewhere, his business might not have recovered. What to do: Do not work yourself so hard that your health deteriorates. Quit any risky hobbies. Consider signing an agreement with a friendly, respected competitor to look after each other’s businesses in the event of extended health problems. Make sure this agreement includes a promise not to poach customers. If you can afford it, buy disability insurance.

Mistake 7: Failing to share the workload with employees or partners. Some small business owners find it psychologically difficult to give anyone but themselves important assignments. Their unwillingness to accept assistance limits their companies’ growth, and eventually they burn out. What to do: If your current employees can’t handle the work, hire or train employees who can.

Mistake 8: Working with unstable suppliers or distributors. When a small business’s supplier or distributor has problems, the small business itself has problems. Example: A California writer lost her stream of income and her entire inventory of books when her book distributor went bankrupt. What to do: Work with multiple suppliers and distributors whenever possible. Watch for signs of financial problems in these companies, such as bounced checks or slow-to-arrive payments. Ask your lawyer to look over your contracts with distributors to make sure that you will still own your products if the distributor goes bankrupt. For more information about protecting your small business:

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