Being an entrepreneur is not easy, and you may find yourself committing mistakes along the way (some more severe than others). Worse, you may even face failure. Unfortunately, that’s what entrepreneurship is all about — the ever-present risks and the potential for mistakes.
David Finkel and Diane Kennedy in their book The Maui Millionaires for Business: The Five Secrets to Get on the Millionaire Fast Track listed the 10 biggest business mistakes — and how you as a small business owner can avoid them:
Mistake # 1: Taking Your Eye Off of Your Cash Flow
The number one reason that businesses fail is lack of cash. Period. End of story. Some of the issues that can bury a new business are:
- Under-funded growth.
- Lack of adequate record-keeping.
- No review of financial statements.
- No control over business assets.
- Unnecessary infrastructure.
- Having to wait for payment for sales.
- Sacrificing short-term cash flow for long-term growth. Thinking that because they have a sale they have cash.
- Spending on inventory.
Watch your cash flow and do whatever you can to protect it. In each of the previous examples of mistakes that cause cash flow problems, there was simply a lack of consideration about cash flow. You wouldn’t grow too fast if you didn’t have the cash, if you knew to watch the cash. You’d have good financial statements and review these on a regular basis. You would practice good cash flow control and make sure you weren’t overspending when you couldn’t afford it. And, you’d make sure you first had the cash flow automatically working before you took on any more projects or expansion. Cash flow is the lifeblood of your business. The next five blunders are closely related to blunder one.
Mistake #2: Improper Management of Accounts Receivable
Accounts receivable are the amounts that your customers owe you. The best way to handle accounts receivable is to not have them! Get paid in advance or get paid at the time of service.
If you must have accounts receivable, front load your collection effort. The longer you wait to collect the money, the less chance you have of getting it. Collection agencies know this. After all, that’s why their businesses exist in the first place. Yet, most businesses only put their energy into collection after 60 days have passed. Imagine how much more effective it would be if that same effort was put into collecting that money at the beginning, as soon as the service has been provided.
Mistake #3: Over Expansion
If you’re a forward planner, over expansion can be a real danger. You know there is more business coming and so you staff up and invest in inventory, capital assets, and additional space. The problem is that all this growth is done without the revenue to cover the additional cost. The new business, if it indeed does come, might be too little, too late. Your business is now vulnerable.
Plan for just-in-time growth. Remember to outsource and watch your cash flow during expansions. It might be best to take out small, short-term loans in the beginning to make sure you have enough cash to handle all the other aspects of growth.
Mistake #4: Too Much Time Setting Up Instead of Getting Business
There are some business owners who like everything planned out and organized before they start. It’s a great skill, but it can be death for a new company. Often it’s an excuse to hide behind instead of going out there and asking for the sale.
Sell first! Get money in the door, otherwise, you don’t have a business. You need to collect money and have cash before you can start organizing anything.
Mistake #5: Selling by the Hour
If all you sell is your time, it’s hard to build a true Level Three business. If you sell by the hour, you are operating in the commoditized world competing against everyone else. Find a way to capture your value in a comprehensive solution, or a project result, or a value proposition, so that you can create and charge for your value independent of your personal time involved in fulfilling. It’s also a much easier transition from a Level Two to Level Three business, where you are transitioning away from day-to-day work in the business.
Look for the unique value you create with your ideas and work. If you have a successful Level Two business, or Level Two skills, then you can transition easily to Level Three once you let go of the need to sell by the hour. Begin by charging a flat fee for the service and then systemize and optimize the service so your team, technology, and systems fulfill your promise in a way that creates more value for your client with lower cost to your business. And finally, turn your knowledge into an information product and sell this as an additional revenue stream.
Mistake #6: Giving Your Expertise Away in a Way that Has No Perceived Value
This is a challenge for many professionals. Prospects call and want to meet with you for a free consultation. You want to dazzle them and give them tons of good information in the free consultation. Yet this one-on-one time is the most costly time you have, because you’ve got no leverage on it and you haven’t been paid for it. Plus, you have no guarantee that you’ll even get a client out of the deal!
You’ve spent a career lifetime learning the skills to ask the right questions and look at your client’s situation and challenges in a systematic way. Charge for this expertise and structure that you bring to the table. Not only will it make you more money because it will be an additional revenue stream, but it will also dramatically increase your closing ratio in converting prospects into paying clients. Best of all your new clients will benefit from the extra value they’ll receive now that you help them understand and appreciate the tangible value your expertise delivers to them.
Mistake #7: Requiring Payment Before You Give any Value
Okay, this might sound like a contradiction to Blunder #6, but it’s not. Be willing to give value first to start the relationship, but do it in a virtual way that minimizes any one-on-one time of your own, Giving value is often a great way to invest in a new business relationship that can pay great dividends. Just do it consciously and not out of habit or fear of asking for payment.
Give prospective clients some huge benefit that has just a one-time cost and requires no ongoing time of yours. For example, we’ve created the “Millionaire Fast-Track Program,” a $2,150 free bonus for people who register their copy of The Maui Millionaires for Business. While it costs us over $100,000 to create and maintain this valuable bonus, we know that over time it will generate millions of dollars of value for our business. How? Because it is a simple and easy way for readers to start doing business with us after gelling an incredible free gift that shows them the quality of the information we offer, We used this with our last book, The Maui Millionaires, as well, and thousands of our readers let us know their appreciation for the book bonus we used in that case by choosing to enter into a long-term, mutually profitable relationship with us and our companies.
One hint: Your free content needs to have real value. It shouldn’t be just a sales pitch. Instead, gracefully and tastefully offer your products or services in your free content in a way that makes the experience a positive and valuable one for your new clients.
Mistake #8: Ignoring Window Shoppers in Favor of Customers
A lot more people will visit your brick-and-mortar shop or your virtual business than will ever become customers. Don’t make the mistake of concentrating on the customers only and ignoring the visitors. Your visitors are people who contact your company through an inbound phone call, in-store visit, or someone who buys your book, or visits your web site. Far too many businesses ignore these unrecorded guests even though your business may be spending hundreds of thousands or millions of dollars in marketing costs just to get them to come by. You must find automatic, systematized ways to get your visitors to tell you who they are.
Offer your visitors such great value (for free) that they choose to enter into a relationship with you in a way that lets you know who they are. The special book bonus you get with this book is a powerful example of this. Each of these offers requires our guest to let us know who they are in order to receive this free information. We each get something of value in the exchange. This same strategy can be used in a retail store (e.g. offer them a free gift certificate), in a service-based business (e.g. script out how your phone team will offer your callers a free e-book, gift, or upgraded service), or in any other business. All it takes is a little imagination.
Mistake #9: Hiring “Warm Bodies”
When the rush of new business happens, it’s really tempting to hire any and everyone. The problem with doing warm body hiring is twofold. First, you may or may not be getting quality employees. And second. you could very well experience a sales slump and be stuck with a big payroll.
Use outsourcing to fulfill staffing needs rather than hiring employees. When you do hire employees, always make sure you do background checks, verify references, and get signed non-disclosure and non-compete agreements.
Mistake # 10: Failure to Fulfill Sales Promises
In Blunder #4 we talked about the danger of spending all of your time and effort in building the infrastructure and systems and ignoring the sales component. That’s a complete non-starter for a successful business. Without sales and cash flow coming in you have no business.
But the extreme opposite is a problem as well. In this case, you make lots of sales, but don’t have a good operations system to fulfill the product or services. In the short run, you’re fine because you have cash. But, in the long run, you don’t have a business that is sustainable because the only referrals you are getting are tepid at best and negative at worst. And, taken to the extreme, you might even have a lawsuit if you fail to fulfill or make a mistake because your internal documentation is out of order.
Article originally published on January 6, 2014 and updated on December 3, 2019
- Managing for Bottom Line Cash Flow in Retail
- Cash Flow: A Factor to Determine Your Financial Wealth
- How to Increase Cash Flow of Your Small Business
- 10 Ways to Manage Your Cash Flow
- How to Manage Home Business Cash Flow Effectively