I love business, and I love business law. I practice in several different areas, but there is nothing like watching a small business start from scratch, and then mature, and thrive. I love meeting with new or future business owners. Sometimes they have a lot of questions; sometimes they are so overwhelmed, they don’t know where to begin, and don’t even know what questions to ask. I love to watch businesses, and their owners, grow and change over time. I love success stories. I am lucky to be in a position to witness success stories everyday.
Unfortunately, not all businesses thrive or succeed. In fact, many businesses fail, sometimes in the first year. There are a lot of reasons businesses may fail. It may be external forces out of the control of the owner, such as the economy, health concerns, or family concerns; other times it may be poor choices by the business owners themselves.
I have made plenty of mistakes as a business owner, all business owners make mistakes. However, there are certain mistakes that I see business owners make over and over again, like clockwork. I have compiled a list of Five of those common mistakes that I have seen repeatedly – there are more than five mistakes that I see routinely, but I want to focus on just the following five. Perhaps something will sound familiar, and reading this may help you in some way.
Perhaps you have heard the old phrase “The man who represents himself has a fool for a client”. While I understand and appreciate that folks want to save time and money, and want to handle things themselves, the bottom line is this: Hiring an attorney is almost always less expensive than NOT hiring one. Every single week, without fail, I meet with people that have unnecessarily cost themselves a lot of time, money, and frustration, by trying to do it themselves. Saving $200 to have an attorney review a simple contract is now costing them several thousand, due to mistakes that would have been caught. The services of a good attorney will save you time and money.
Not talking with their CPA
Just as not seeing your attorney can cost you, not seeing your CPA can cost you big time. A good accountant or CPA can actually save you money, and pay for themselves several times over. Just one example: many small business owners may be better off taxed as a S Corporation, rather than a partnership or proprietorship, and are paying in large amount of self employment tax. LLC’s CAN BE taxed as an S Corporation, many of my clients do this. Your CPA can discuss this issue, and many others, and save you money in the long run, and sometimes in the short-term.
Lack of Succession Planning
Individuals need an estate plan; business owners need a succession plan. Just like I advise every person that they need to have their will and trust in order, every business owner should have a plan in place if they were to become incapacitated or pass away. If you are a small business owner, who would run or own the business if you died, became incapacitated, or wanted to retire? For medium sized businesses, what happens if a Key employee passes away, or leaves for one of your competitors? A good succession plan can ensure the continuity of the business, and the future of the employees and customers though changing times.
Not Knowing What The Business is Worth
If you did want to sell or retire, do you know what the business is worth? If you have a succession plan in place, or thinking about entering an agreement with a key employee or even a competitor, you need to know what the business is worth, or what appropriate buy-in amounts are. I hear from small business owners frequently “Oh, my business isn’t worth too much”. Do you know that for a fact? Why not have your business valued? The results may shock you. If you knew that your business WAS worth something, might that motivate you to put your succession plan in place?
Not USING the Business Entity They Set Up
Last but certainly not least, this is one of the most common and unnecessary mistakes business owners make. Along the same lines of the “Do-It-Yourselfers”, many times someone will set up their own business, perhaps an LLC or a Corporation. Then, when it comes time to enter into contracts with vendors, with clients, or other parties, the business owner enters into and signs the contract as simply “John Doe” (personally), rather than “John Doe, President, Doe Enterprises, Inc.” What good is having your LLC or Corporation if you don’t use it? In the first circumstance, if something goes wrong with the contract, John Doe will be sued personally, because he was the party to the contract, and signed personally. In the second circumstance, if “Doe Enterprises, Inc.” was the party to the contract, and John Doe signed as “President”, then the Corporation itself is the party to the contract– and if there is a contract dispute, the Corporation gets sued– not John Doe personally.