6 Big Mistakes that Small Business Owners Make that Can Lead to Struggle and Failure

In business, ignorance is not bliss. In the last three years of running my own business consulting practice and 20 years of advising small business owners, I’ve seen a trend of “mistakes” or challenges that small business owners face that cause them to struggle, and can lead to financial failure…these are mistakes I’ve made in my business as well. Most business owners are really good at their passion (their reason for starting their business), but very few have business management and finance training – they’ve never learned to run a business…I know I didn’t have that knowledge at first when I started my business, even with my seven years of business finance and accounting education and professional designation. But you don’t have to struggle like I and so many other business owners have…here are some tips to overcome the biggest small business mistakes that contribute to those struggles.

Mistake #1 – Failing to Plan

We all know the saying, if you fail to plan, plan to fail. Yet, strategic planning continues to be one of the greatest struggles for business owners. It certainly was for me when I started out. I knew I had to have a plan (I had the offer, target client and financial forecasts, but had no sales and marketing plan), but trying to work with business plan templates used to make me nauseous…that is, until I found a more intuitive approach to business planning. It starts with having a very clear vision of you business, what you offer, to whom, and WHY (WHY you’re doing your business – your mission, and WHY customers would buy from you)…I use visualization and meditation techniques to get this clarity. This is an iterative process, and while your WHY may not change much, your offers and target clients could change dramatically over the years. My only caution here is to not get caught in the planning paralysis trap…make sure you are taking action while you’re creating and refining your plans (results come from taking action and going through iterations, failing fast and getting back in the game).

Mistake #2 – No Clear Value Proposition and Ideal Client Experience / Process

The more targeted and clear you can be with who you serve and the results you create for them, the easier it will be to communicate that value and attract new high-quality clients. It’s easy to want to serve everyone, and not leave anyone out. While this “jack-of-all-trades” mindset can work for a little while, and while you determine what you’d really like to be doing, it can lead to a huge dilution in energy, focus and profits. It’s difficult to communicate your message to the masses in a way that anyone will actually hear it. It’s better to have a focused approach, targeted to a specific group…try it for 90 days…if it doesn’t produce the results you’re looking for, target a different group with a message designed to reach them. Again, this is an iterative process.

Mistake #3 – Not Tracking and Reviewing Financials on a Regular Basis

Most business owners are not trained and educated on organizing, tracking and understanding their financial numbers. In fact, less than 30% of business owners have a good understanding of what their numbers are telling them (couple this with the fact that 85% of business failures are a result of poor financial organization and know-how, it’s no surprise that so many businesses fail). Yet, the numbers tell the story of how the business is doing and can highlight problem areas that need to be addressed. As a micro or small business owner, at a minimum you’ll want to review sales, gross margins, major expenses that you can control the most, and profit margins. You’ll also want to look at balance sheet items such as accounts receivable (how much, from who and how long have they been outstanding), accounts payable (how much, when are they due), and balances in your bank accounts. Review your numbers on a regular basis (monthly is best), and get help to truly understand what your numbers are telling you.

Mistake #4 – Not Paying Yourself Enough

This is one of my favorite things to work on with clients. The traditional business model has been to pay the owner last, with whatever is left in profits after operating expenses. When you follow this model, you’re likely to get paid a lot less than you’d like (or not at all). While working with one client, he figured he was only paying himself $2 an hour for his efforts…you wouldn’t work for anyone else for less than minimum wage, so why work for yourself for such low pay. I like to take a bottom-up approach to paying yourself first and determining what sales you need to support what you want that pay to be.  Here’s how: determine what you’d like to pay yourself (based on your personal needs and lifestyle), layer in taxes, desired business profits and estimated operating costs, to determine what your revenues and prices should be. This approach works really well for service-based entrepreneurs, and I’ve developed a whole empowered pricing course to teach this method [email me for more info].

Mistake #5 – Trying to do it ALL Yourself

Some business coaches may say that you should turn your greatest weaknesses into your greatest strengths. However, this is not what 7+ figure business owners do…they capitalize on their strengths, recognize their weaknesses, and build a ROCKSTAR team to get done what needs to be done in the most efficient way possible.  Often we feel as entrepreneurs, we need to do it all ourselves/be jack of all trades…this can work if your goal/intent is to be a practitioner for life (i.e., steady contract work), BUT, if you want to grow and scale your business successfully, you need a good team to support you.

Getting help and building a team doesn’t have to mean hiring full-time employees, but it does mean you have to think about all the different functions in your business, what is within your zone of genius, and what makes sense to outsource. Create hiring criteria (whether hiring consultants or employees) and make it a priority to outsource and delegate what is not your genius so you can focus more on what you do best, knowing that the rest will be properly taken care of.

Mistake #6 – Not having a Governance and Risk Management Plan

Most small businesses have no governance/risk management plan, yet it is one of the most important aspects of business success. Governance and risk management may not be sexy, but ignoring this aspect of business could lead to business failure. Just think about what would happen to your business if you had a significant negative tax audit, or legal action from a customer or employee, or experience a major illness or disability. It’s necessary to identify all your risk areas (legal, tax, employee, operations, economic, health, political, social, technology, business interruption, etc.) along with potential costs should the risk materialize, then implement protocols for managing and mitigating those risks within your risk appetite.

The bottom line is, when you have a clear vision for your business, supported with systems, structure, protocols and people to help you achieve your true potential, all the pieces start to fall into place…and you’ll have more ease, confidence, peace and harmony in your business and its possibilities.

These are all areas that I work with my clients to overcome and create a strategic business roadmap for success, while working on shifting their mindsets and relationship with money and the financial side of their business. I invite you to book a discovery call with me to discuss your challenges in business and what actions you could take right away to overcome them. I also welcome you to join the CFO Mentoring community on Facebook to support you in being the CFO of your business and your life!

3 Small Business Finance Hacks to Improve Your Cash Flow

twitterpost%2feventbrite-template-6 I have found that the biggest concerns of small business owners are Sales / Revenues. Cash Flow, Team and Support, Time, and Risk Management. These are all issues I help small business owners and solo-preneurs more in-depth within my CFO Money Mastery programs, but I’m sharing just a few tips to assist you with generating revenues, increasing your cash flows, and focusing your time and effort.

  1. Pay yourself FIRST

When was the last time you looked at how much your business is paying you (or you’re paying yourself), compared to what you’d like to be paid (or at least need to be paid to cover your cost of living)? Pay yourself and your business first – build up a cash reserve policy and practice so that you can deal with repairs/replacements when they arise.  Here are some things to look at:

  • Try putting at least 10% of every dollar you bring in into a savings or special purpose account. If you feel you can’t do 10% right away, try 5%, something, anything, that is automatically put away each month/week into a separate account that earns more money (interest, dividends, capital gains).  You’ll see how quickly that account starts to grow and how much you can accumulate in a relatively short amount of time.
  • Know what you’re paying yourself for your time, and what you would like to get paid for your time. The simple formula for finding what you’re paying yourself in your business is to take your revenues, less all your expenses, divided by the number of hours you spend in your business.  What is that?  What percentage of revenues is this, is it what you’d like to receive?
  • Review at your pricing strategies – this ties into paying yourself. Make sure that your pricing strategies include paying you for your time and effort.  Understand what products and services are most profitable, or which ones could be more profitable.  Review your profit margins and give yourself a raise.

2.  Streamline your profit model You’ve all heard, jack of all trades, master of none?  While it’s good to have some diversification, when you have so many offers that are not streamlined with each other, you could be spreading yourself thin trying to market all of them.  But, when you start with your top end offer, and have everything else streamlined to that offer, your attention and efforts are more focused and aligned with selling the top end product. But how do you streamline when you have so many great ideas coming to you?  There certainly are ways to do this, and I offer a half day session on brainstorming ideas and putting them into streamlined offers, but here are a few key questions when you find yourself coming up with a ton of ideas and wanting to serve them all:

  • Is it even for you to create and run with? Or should it be passed on to someone else? This happens to me – I get a ton of ideas, but realize that some of them are not for me and will end up having a conversation with someone who I’m supposed to pass the idea on to.
  • Is it asking to be created/offered right now, or later? If later – park it in your idea book and review it later. If it’s asking to be created now, through you, run with it.
  • Is it aligned with the bigger picture for your business? Is it something that can be added to what you’re already offering – as a bonus or as a side dish that you charge for?

If you have a ton of offers, but seem to be spinning your wheels trying to generate revenues with all of them, try focusing on just 3 things that give you the most profits and cash flow, at least for 90 days.  You’ll see with more focused attention and marketing/selling efforts, your revenues may actually increase.

3. Track your money daily! Why daily?  It allows you to spot trends in your revenues and sales numbers so you know what your numbers are telling you.  That way you can  take corrective and inspired action right away to create more flow and hit or exceed your bold money targets. In my experience, in the months I don’t track what’s coming in daily, I have less revenues than the months I do track what’s coming in daily.  Tracking my money daily (which takes less than 5 minutes a day) gives me focus to do what I need to do to have more coming in, to hit and even exceed my bold money goals. It IS best practice (and good management) to keep your bookkeeping up to date and review your financials at least monthly.  Managers at large corporations review financial data almost daily (even hourly in some cases) to allow them to spot trends and take action to align their efforts to their targets.  As a small business owner, key metrics that you’ll want to look at are sales and profitability, cash in bank accounts, cash tied up in AR, amounts coming due (AP, Payroll, Taxes) in the next week/month, expense trends (which you can find benchmark data on Statistics Canada (or other similar statistical database for your area) to find out how your metrics stack against other businesses in your industry), and anything that is important/relevant to your particular business that will enable you to make timely and smart money decisions for your business.

 

What you track, expands. We’ll be going into more depth in these 3 hacks and SO MUCH MORE in the CFO Money Mastery 8 Week Jumpstart program (which kicks off Nov 22nd with a special bonus session). If you would like clarity and assistance with creating more flow in your business, contact me to book a complimentary Business Clarity Breakthrough Session.  Or check out one of my upcoming workshops or group programs on the Events page.

 

[author] [author_image timthumb=’on’][/author_image] [author_info]Linda Spencer is a CPA, CA, Canadian Tax Specialist and Money, Marketing & Soul business coach. Her mission is to eliminate stress and anxiety around money and taxes, by empowering heart-centered small business owners with the tools, knowledge, strategies and mindsets to put them in the driver seat of their financial success and wellness.[/author_info] [/author]