Published By Faith Stewart at September 13th, 2018
Are you committing these 5 common mistakes business owners make? Since time machines do not exist, there is no way you could ever use one. This means your best bet is to avoid mistakes as much as possible. Mistakes will happen. It is a fact of life. However, by understanding what some of the most common mistakes are that business owners make, you can make a plan to stay out of trouble.
Let’s take a look at Joe Businessowner’s life as he makes them all. In his world, time machines do exist. He has agreed to let us ride along with him as he endeavors to correct what he’s screwed up so we can learn from his mistakes.
Remember, you can try to save a sinking ship. Sometimes you will even succeed. But if you can see the iceberg coming and avoid it altogether, you will be much better off.
In the early days of his business, Joe Businessowner was intent on making a profit in the first year. After 3 months of still being in the red he bought a new building, added more space, and increased hours.
Not only did business not increase quickly enough to fill the space, but he now couldn’t meet his expenses. He didn’t understand. He had rave reviews and all of his customers were happy. What was wrong?
At the end of the first year he was still in the red and gave up completely, shutting his doors.
While it is important to take risks, opening your own business is already a risk. That is enough for the first year. It is important to understand that most businesses do not turn a profit right away. It can sometimes take a few years.
What should he have done? First, he should have set more realistic goals over a shorter time period. That would allow him to see the progress he was making. In turn, he would be less likely to get discouraged over the bottom line.
He also needed better market research. With the right information, he would have seen the need to focus on building clientele. Instead, he assumed he had the market to fill additional space just because the business was doing well.
After his trip back in time, Joe was able to start over. Rather than setting a huge year long goal, he set quarterly sales goals and strove to meet those. This time he saw a much different picture at the end of the year. Although he wasn’t yet out of the red, he could see that sales had increased by 10% or more each quarter.
Seeing this progress kept him from becoming discouraged and giving up. He was able to keep his eye on the prize.
Joe was ready to get the ball rolling. He was so excited that he didn’t give any consideration to how he would handle the unforeseeable. What if the building caught fire, or the only two employees both called in sick?
There was no computer back up process, and he pretty much took each day as it came.
He spent whatever he felt necessary on office supplies, wages, and equipment. He had no plan for what he would spend each month.
The end result was he wasn’t getting the best value for his money, and he didn’t have the income to cover regular expenses. When lightning struck his main server, he lost all inventory and financial information.
The cost to recover was astronomical and set him back substantially.
Spontaneity can be a good thing, but in the business world, having a plan is key. You need a plan for expenses and income, also known as a budget. There needs to be a plan for marketing, how to handle growth, and an emergency action process needs to be in place.
After his trip back in the time machine Joe created a workable budget and stuck with it. He spent time comparing prices on items and services and made sure he got the best quality he could afford. He also set up a computer back up process that included offsite copies. If anything unforeseen were to happen, his information would be safe and secure. Business could continue as usual without having to reinvent the wheel.
Joe knew he would occasionally need business financing. He figured when he got ready to purchase new equipment or expand, he would apply for a loan from his regular financial institution.
What he didn’t consider was that his cash register would crash and burn after the first 8 weeks. Those are not cheap. He didn’t have the cash on hand to buy a new one.
The situation could have been any number of things. Maybe there was a fire and inventory burned. Insurance takes a while to pay out, and in the meantime, you can’t do business in a burned-out store without inventory.
You have to plan for the unknown, whatever it may be.
The best bet is to have a cash safety net in place before you need it. This can take a couple of different forms. It could be a business credit card or a business line of credit.
Not only will this allow you to handle the unexpected in a much more time efficient manner, but it can help you build business credit as well. By making on-time or early payments on a revolving credit line, you will only improve your business credit score.
Then, when the time comes to get that business loan to expand, you can negotiate for the best terms and interest rate available because you have already built solid business credit.
When Joe got back to square one in his time machine, he immediately applied for a business credit card. Since he was just starting out, he didn’t have the highest limit or the best interest rate, but when his cash register went out, he was able to replace it the same day.
Business continued virtually uninterrupted, and he was able to make payments on the card and build his credit. Eventually, he applied for a card with a higher limit and a much better rate. Life was good.
Joe believed he could saving money by doing most of the work himself. He was a people person, so his strength was customer service. And he was great at making sure customers were happy and making it right if they were not.
He also decided to handle all the bookkeeping and payroll himself. After all, paying a bookkeeper or accountant seems like a waste of money since he took accounting in high school.
He also figured he could handle the social media aspect of the marketing because, who can’t handle Facebook and Twitter?
It seemed like the perfect plan until things started slipping. It was just too much for one person to keep the business running, make sure there was money in the account, keep receipts organized for tax time, and market on Social Media.
At the end of the year he had a tangle of receipts to hand the tax accountant. The accountant charged extra hours just for the time it took to organize everything. He hadn’t made a social media post in over 8 months, and checks were bouncing because he didn’t realize he needed to make a draw on the line of credit.
Business owners should know their strengths, use them, and hire others to do the rest. A dedicated bookkeeper can save a ton of money in fees and billing by keeping things organized and running smoothly.
They will also catch when things aren’t going as planned. This way, if there is a mistake, you can deal with it before it becomes a real problem.
A dedicated social media manager can update all platforms regularly and communicate with any customers who make contact through social media. It is almost better to have no social media at all than to have it and ignore it. Customers perceive an inactive social media account in a much more negative light than the lack of a social media account.
This time around, Joe hired a bookkeeper. He outsourced social media to a freelancer. Then he focused his time and energy into making sure his customers were happy.
His social media following exploded. This brought in more business than he ever imagined it could.
His bookkeeper alerted him when there was going to be a cash shortage due to timing, and he was able to make a draw on the line of credit as needed.
The tax account also was a much happier person at the end of the year.
Whenever things get a little bumpy, a quick reflex is to cut prices. The idea is that If you offer a better deal, more people will do business with you.
This isn’t always the case. If your products are not at a price the market supports, it might work. That is another issue though. Otherwise, you may see an increase at first, but long term it isn’t going to be a good thing.
People are willing to pay for a quality product. If you are struggling, it is best to figure out what they are buying instead of what you have for them. Maybe it is a market issue. It could be the demand just isn’t there.
Maybe it is a competition issue but related to something other than price. If you sell pizza, maybe they just like the burger joint down the street better.
Joe made the mistake of cutting prices as soon as he saw trouble on the horizon. A few more people came in at first, but he didn’t really make any more profit because of the lower prices. Eventually he could no longer make ends meet at the new prices and raising them again didn’t help because the customer base still wasn’t there.
This ride in the time machine brought Joe to a place where he now knew that price wasn’t always the problem. Instead of slashing price tags right away, he did some research. Why was there a decrease in profits? Was he really priced too high?
He found that the real problem was a competitor had what his customers perceived to be a better product. The clincher was that the competitor actually charged more for their product than him.
Further research revealed that if he made a few improvements he could actually raise his prices while still staying under the competitor’s price. He could offer his customers a more satisfactory product at a better value.
That is exactly what he did. Customers recognized the improvements and the better value, profits picked up, and Joe lived happily ever after, parking the time machine until he needed it again.
You really don’t. There have been enough successes and failures in the business world that you can learn the lessons you need to learn before you ever get started. You have to listen though. Pay attention to those who have gone before you and heed their advice.
Don’t make these same mistakes. You can avoid them with just a little extra planning and a lot of hard work. Discover this new way to avoid common mistakes business owners make.