I spent 17 years in the corporate world working directly with small businesses and 10 years as a small business owner myself. During that time, I saw many mistakes people made, but some were more common than others. These are the most common mistakes small business owners make.
1. Revenue ≠ Profit
Revenue is not the same as profit; they’re not even in the same ballpark. Let’s say you receive a check for $10,000. It might feel like a windfall, but it’s not pure profit. After covering expenses like employee salaries, insurance premiums, supply costs, and workers’ compensation, what you’re left with is often much less.
2. Tax Write-Offs Aren’t Free Money
There’s a myth that tax write-offs are like free money. They’re not. For instance, if you spend $1,000 on office supplies and you’re in a 25% tax bracket, you don’t get $1,000 back on your taxes. You save $250 on your tax bill. So, you’re still out $750.
3. Seasonality in Business
Everything has its season, and business is no exception. Take something as simple as chewing gum—it’s fascinating, but its sales plummet when it’s raining. If a month brings about 10 rainy days, this could lead to a loss of 30% or more in that month’s expected revenue.
From my own experience, I once owned a bar and our survival through the first year hinged on acknowledging this seasonality. Aware that summer would be slow, I negotiated the rent down to half during this period and chose to close from June 1 to September 1.
This decision helped cut costs significantly. Back then, rent was $1,500 a month, so during those three months, I saved about $3,000. If I had chosen to stay open without negotiating the rent, we would have faced a $10,000 deficit.
4. 40-Hour Workweek
If you’re steering a small business, cruising at a 40-hour workweek might not always cut it. Sure, it’s a standard full-time job’s hours, but when you’re at the helm, your business may need more from you.
Family events and emergencies are, of course, non-negotiable – those days off are important. But outside of those, the extra time you invest can make a significant difference in growth and stability.
5. Picking the Wrong Product
Selling the same thing as everyone else? Let’s face it, you’re not going to make it.
I get it, you see those Alibaba deals and think you’re on the brink of creating the next big brand. But here’s the tough love: it’s not going to happen.
No matter who you hire to spin your marketing gold or how glossy your website looks, selling the same widget as a hundred others means you’re treading water. And trust me, I’ve had this talk too many times. It’s a tough circle to square, getting such businesses off the ground.
The bottom line? It’s got to be unique. Unique sells. That’s the ticket to moving product and standing out from the crowd.
If your product isn’t a home run hit, something super unique that you can’t find on the shelves of Walmart or with a quick search on Amazon, you’re going to hit a wall.
6. Not having the right friends
Befriend the right folks, and you’ll not only save a ton of money, you’ll also save yourself from a heap of trouble. There’s real value in having friends who jump in when you’re in a bind. Imagine your AC sputters out during a heatwave or your pipes decide to reenact Niagara Falls – you’re going to want help, fast.
I’ve been there, waiting on a fix, watching time and money drip away. But, because I had the right contacts – people I’ve shared a meal and laughs with – I didn’t have to wait long. A buddy with tools and know-how is worth their weight in gold. So, make those connections.
7. Not Having Thick Skin
If you hesitate to let someone go when it’s necessary, your business could suffer even quicker. And let’s face it, the odds of success are often slim – you’re looking at a success rate of 20% or less. That’s why you should be mentally prepared to dust yourself off and jump back in the saddle immediately if things don’t pan out.
8. Always Get It in Writing
It’s a golden rule: if it’s not written down, it might as well not exist. Renting a property? Secure a signed lease. Teaming up with a friend or business partner? Draw up a clear agreement outlining work expectations and profit sharing.
Hiring a contractor? Have a contract that details the job scope and payment terms. And for employees, don’t just rely on a handshake – get an employment contract in place, along with a comprehensive written policy manual.
9. Starting with Friends & Family
You’ve probably heard this a thousand times, but it bears repeating because the same old story keeps playing out: Partners usually hit a rough patch just when the cash starts rolling in. Despite the initial belief that “we’re better friends than that,” money has a way of testing bonds.
Everyone’s slaving away to build the business, but once the profits begin to materialize, suddenly the developer is convinced that their genius coding is the secret to success, deserving of a bigger piece of the pie.
Meanwhile, the marketing guru is sure it’s their savvy strategies bringing in the bucks, and so the tug-of-war over money begins. It’s a classic scenario – one that’s avoided by having clear agreements from the get-go.
10. Not Willing to Take Risks
Do not start a business if you’re not willing to take risks. You’d be way better off working for someone who does.
Just think about Formula 1 drivers – the ones who hesitate on the brakes are rarely the ones on the podium.
11. Cutting Corners
We’ve all heard the old adage, “slow and steady wins the race,” and yet, the temptation to take shortcuts is a common pitfall for many eager business owners. Trying to ‘work’ the system might seem like a clever move to get ahead quickly, but it’s often a recipe for disaster.
These shortcuts might give the illusion of progress, but they can lead to shoddy workmanship, a damaged reputation, or even legal troubles. The truth is, there’s no substitute for putting in the hard work, maintaining integrity, and building your business step by step.
12. Cash Crunch
Underfunding is the most common reason small businesses fail. Think about it like planning a road trip without enough gas in your tank. You might have the best snacks and an epic playlist ready, but if you can’t make it to the next station, your journey ends early.
It’s the same with your business. If you don’t have enough cash to keep the lights on while you’re still growing, you’ll hit a wall.
13. Not Cutting Ties When Customers Don’t Pay
Some customers just won’t pay their bills. It may sound harsh, but if someone isn’t paying up, it’s often best to cut them loose. It’s not your job to bankroll their balance. You’re running a business, not a charity, and chasing after unpaid invoices can be a huge time-sink.
Instead of playing tag with payments, your time could be much better spent looking out new customers – the kind who actually pay their bills.
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