10 Common Mistakes Business Owners Make and How To Avoid Them

To say running a business is no easy feat is an understatement. Many complications can arise for business owners regardless of their business size or their industry. 

There are common mistakes that we consistently see business owners make. Some of these may seem small, but they can have serious repercussions for the business in the short and long term.  

Being a business owner is a constant learning experience, but many missteps can be avoided with the right knowledge. 

To help you in this education process, or to help you advise loved ones who are starting a new venture, we’ve covered 10 of the most common mistakes we see business owners make. We’ve also provided tips on how they can be avoided.  

10 Common Mistakes Business Owners Make and How To Avoid Them

1. Getting Personal Finances Mixed Up With Business Finances

An action that could seem harmless, like paying a personal expense from a business account and then paying it back later, could bring serious legal and tax repercussions. 

For tax purposes, you need your record-keeping to be as clean and accurate as possible. If you have business expenses mixed in with personal expenses, it’s easy for errors to happen when it comes time to prepare your returns. This can then open you up to an audit. 

Mixing the two can also create potential legal issues in which your personal assets could be liable. 

To keep things clear from the beginning, your business should be set up as a separate legal entity with a bank account that is completely separate from your personal account. You should also have systems that keep your business bookkeeping separate from personal bookkeeping to avoid confusion. 

Allocating yourself a salary is also a good way to ensure you do not need to take any funds from your business account for personal use. 

2. Failing to Hire the Right People and Not Delegating

People are essential pillars of any business. Yet many businesses fail by either not hiring the right people for the right role or when the business leader wants to be in charge of all areas of the business. 

When a business is small or just getting started it’s natural that people will have to wear multiple hats. However, as your business grows you should consider hiring people with specific areas of expertise to look after the relevant areas of your business. 

If you attempt to do it all, you will likely end up burned out. For your business to succeed, you’ll need to accept the value others can bring and avoid micromanagement. 

3. Not Creating a Solid Financial Plan

Your financial plan is the roadmap for your business’s financial health and success. It should cover your company's financial goals and the clear steps you will need to follow to reach them. 

Part of this planning process is taking stock of where your business is right now. That includes assessing the business’s current financial state. It should also explain how the budgets are to be managed. Taxes will need to be planned for and risks managed through insurance planning. 

Another mistake that business owners make is failing to build contingency plans when they are creating a financial plan. In business, it's the rule rather than the exception that problems will arise. What separates successful businesses from the rest is having a contingency plan according to risks the business could potentially face. This could mean having extra money set aside, certain insurance policies, backup resources, and more.  

4. Creating Unrealistic Financial Projections

A big error business owners make, especially when starting, is not taking the time to research and properly understand the market in which they are operating.

When you inaccurately set revenue or expense projections and then miss them by a mile, this can make investors or potential investors nervous. This can mean less cash coming in with the downstream effect being that you have less cash to pay debts and business expenses. 

Therefore it’s essential to do thorough research on the market and also create a solid, realistic business plan that allows you to make accurate revenue and expense projections. 

5. Not Having Enough Cash Flow

When running a business, especially in the early or start-up phases, unexpected expenses can come out of nowhere and it’s essential to have enough cash flow to absorb these shocks. 

A positive cash flow can also help you strategically manage debt and cover day-to-day expenses. 

This also connects with the importance of having a solid financial plan. It’s impossible to manage cash flow without creating a budget and clearly recording your expenses against your income. 

6. Failing to Plan Properly for Taxes

Business taxation can be complex and business owners can face hefty fines if they are not fulfilling their obligations. It’s also advantageous to know how your business can benefit from certain tax rules. 

Whether you’re just starting out or are an established business owner you should educate yourself on business taxation and its implications, both positive and negative, for your business. 

You should also call on the help of a tax expert as regulations and obligations can change frequently.  

7. Taking on Too Much Debt

Having some debt is a natural part of running a business and can also be a good thing. This is because you need to build up a credit score for your business and you do this by managing credit and debt appropriately. 

The problems arise however when you take on too much debt. This can lead to cash flow issues as your cash needs to go towards looming debt repayments. You then run the risk of not having the funds to pay your employees and other business expenses. You’re also likely to become behind on debt payments and this can impact your credit score.

Having a solid financial plan with accurate financial projections and a contingency plan can help prevent you from needing to take on too much debt. 

8. Not Having a Risk Management Strategy

You cannot run a business without assuming a degree of risk. Yet taking on too much can endanger your business and if you have no strategy in place to mitigate risk your business will be even more exposed. 

To keep it in check you should develop a detailed risk management strategy.  In fact, according to 2022 research from PWC, organizations are two times more likely to project revenue growth of 11% or more when embracing risk management capabilities.

9. Not Learning From Mistakes

Mistakes are a natural part of business and sometimes you have to learn something from failing at it, many of the best in business have. 

The key here is to acknowledge when something has gone wrong, analyze what happened, quickly learn from it, and then apply those learnings when making your next important decision. 

10. Not Using Professional Advisors

Running a business involves several factors relating to taxes, legal issues, and wealth. It’s impossible to have an in-depth understanding of the intricacies of these areas while running a successful business. 

This is why seeking guidance from the relevant experts early on in your journey can save you time and money in the long run. Without their help, you could be left exposed in a critical area.

Takeaways 

There are countless mistakes businesses can make. Here we’ve looked at some of the most common ones and offered potential solutions. 

Running a business is an exercise in constant learning, and it's also crucial to have the correct guidance from experts so that you can navigate territory that is unfamiliar to you. 

At Entrust Wealth Partners we can offer guidance and point you in the right direction if you need other specialist advice. Simply read out to your advisor today or contact our office at (860) 838-3730 to get the conversation started.