5 Common Mistakes of Business Owners
Brad Smith • February 4, 2020
Starting a small business is an exciting experience and can be financially rewarding. When opening a new company many owners overlook some of the basic considerations for their business because they are focused more on getting off the ground. Below are the five most common mistakes that business owners make.
1. Short term, short sighted
- Its important for business owners to consider the long-term growth of their company. Owners need to think about how to sustain their growth and drive value. For instance, owners often choose to acquire assets that reduce their company’s income and allow them to take advantage of a number of tax benefits. While this strategy might save money in the short term, they risk diminishing the future value of the company.
2. Write it on paper
- When starting a business with someone else, whether it’s a friend or family member everyone is going to be excited. With the excitement it may seem as if a partnership agreement is unnecessary. However, if the company fails or hits a rocky patch, arguments will rise about who is entitled to what. Disputes can arise even when times are good, and a business is doing well. It’s vital to protect yourself with an enforceable partnership agreement. For instance, if one of the partners wants to retire and sell his or her portion of the company, its important to have a clear agreement outlining how the respective ownership interests will be divided.
3. Don’t underestimate your obligations
- Its important for owners to recognize the impact such commitments can have on a company’s future value. Small companies don’t often realize the obligations they take on such as personal guarantees, that may impact the value of their company. If the owner of a sandwich shop signs an 8-year lease for his or her store location and then attempts to sell, anyone who purchases the business will be responsible for that 8- year lease. This can be a huge financial obligation. The cost of the lease may decrease the value of the company and how much the buyer is willing to pay.
4. All financing is not created equal
- To avoid unreasonable demands from lenders or investors, it is important for business owners to develop both a realistic business plan and sturdy relationships with dependable financial professionals and lenders. Business owners should not accept unreasonable demands from lenders or investors that could burden the company with high interest, debt repayments or give away ownership control.
5. Know your market
- Business owners must take the time to understand their market. They need to define their competitors and calculate their ability to gain control of additional customers or users. Growing too fast is a common mistake of small businesses that can destroy the value of a company and could lead to bankruptcy.
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