6 Mistakes First - Time Business Owners Make (and What to Do Instead)
Starting a business is very hard and sustaining a business is even harder. No truer words may ever have been spoken by our Co-Founder, Jessica Fialkovich, on an early episode of the Deal Board Podcast. Despite this stark truth, there has never been a better time in history to be an entrepreneur. The barriers to entry are low and the resources available to help entrepreneurs build a successful business, especially in the Rocky Mountain region, are plentiful.
With this in mind, our overarching tip for building a small business is to have the awareness that you are going to have to exit at some point. There are very few businesses, especially with the younger demographic, that will stay with the same owner in the long term (10 - 20 years). If you think like this, it will give you a mindset that will allow you to build a better company from the start. In this article, we’re outlining tips for first time business owners when launching a startup or buying a business.
Making Yourself too Integral to Daily Operations
All too often business owners spend too much time working in their business instead of focusing on the bigger picture and the impact they can have on the overall strategy of the company. A good way to sort this out is to ask yourself, “How would I transfer all of the things I’m currently doing in my business to someone else?” And then structure your organizational chart in this manner. And if there are no employees available to take on your roles, it is time to consider how you can build middle management into your business. A great resource on this topic is Michael Gerber, author of The E-Myth who said, “Don’t become your company. Invent a company that can effectively scale and grow.”
Signing Limiting Contracts
If you consider your business as the asset it really is, then you’re going to make financial decisions that will help structure your company better and with exit opportunities in mind. One great example of this is including an assignment clause in your business contracts, which will allow them to be “assigned” to a new owner when the timing is right. Contracts that benefit from an assignment clause are leases, legal documents, leased equipment contracts and more. Working with an attorney can help you structure contracts in this way.
Not Recording Cash Flow
It is not uncommon in business brokerage to work with small business owners who have literal cash flowing into their business and they’re not documenting it. This is a common business mistake that can cost you a lot of money. When we list a business for sale, we use the last three years of financial statements to build a recast of the business that gets shared with buyers and to develop a listing price. Without properly documented books, it can be very difficult to achieve the return a business owner wants from their company, if there’s no record of actual cash flow.
Ignoring Plans for Growth is a Big Mistake
There are a few things that come to play when you ignore documenting a growth plan within your business plan.
- You can stagnate.
- You don’t know how to benchmark yourself against your growth.
- Your competitors can surpass you.
- Your employees may consider new employers.
- You may lose revenue generating opportunities.
- Your customers may choose alternate businesses.
Growth goals give you direction and a strategic place to focus spending. Once this is in play, you also need to set S.M.A.R.T. goals so that you can measure productivity and evolve your growth plans depending on outcomes you’re seeing. All of this will allow you to guide the scale of your business and strive for continual improvement while making sure you stay ahead of competitors and can meet customer needs. Buying a turnaround business is a great opportunity to implement a growth strategy within a business, while getting the benefits of an established business.
Not Paying Attention to Your Customer
A common small business mistake when you’re starting a new business is to try to be everything to every customer, but this won’t serve you well in the long run. If you listen to your customers and play to the customers who will benefit from you the most, the easier it will become to build success for your company. Understanding who your ideal customer is will open your eyes to the many opportunities to meet them where they’re at making your marketing and sales more effective.
Treating Your Business Like It’s Your Baby and Not an Asset
While first time entrepreneurs may start a new business so they can do work that they’re passionate about, this can create a disconnect in your ability to operate your business as a business and a wealth building asset. All aspects of your business from marketing, to billing and so on are tools that let you make a living while doing something you love, but if you don’t treat them as such, your startup can fail fast. Our business advice would be to take a step back from your emotional attachments to your small business and make decisions from a functional and financial standpoint.
Your business is going to be sold at some point. If you treat it like that the entire life of the company, you are going to make much smarter decisions ultimately increasing its profitability. These same decisions will also help you sell your business in the future. To speak with a business broker building a valuable business from the start visit our website or schedule a consultation.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!