We want to start 2021 off on the right foot, so to kick off our new year we are talking about common mistakes in business and how to avoid them! We want you to run a successful business, which means avoiding the pitfalls that can be easy to miss when you’re stuck in day-to-day operations. We are regularly involved in strategic planning, forecasting, cash-flow analysis, etc. so we get front row seats to all the action. Today is all about helping you be cognizant, and avoid, the mistakes we often see as virtual CFOs and CPAs working with owners of growing businesses.
What we cover in this episode:
- 00:30 – Introduction
- 01:57 – Mistake #1 – Not trusting your gut
- 05:48 – Mistake #2 – Lack of knowledge about business structure
- 12:40 – Mistake #3 – Letting daily issues distract from long-term goals
- 16:56 – Mistake #4 – Failing to invest
- 17:43 – Mistake #5 – Inability to adapt
- 20:16 – Mistake #6 – Not asking questions
Mistake #1 – Not trusting your gut
Personally and professionally, people don’t trust their gut. Whether you call it your gut, intuition, we have this feeling in our body when we make decisions. That feeling is there for a reason. Many business owners have a gut feeling that guides them, but it’s also important to recognize when you don’t have all necessary information or knowledge to make an educated decision.
Proactively seek information from professionals in order to get the full picture so you can follow your gut. Go to people you trust and who will give you honest opinions, like your advisory team. We’ve said it before and we will say it again and again, your advisory team is very important. Your advisory team can help you get a feel for whether you’re off or on the right track. They can give you things to consider that you may not have thought about previously or offer a different perspective. Your advisory team should not only consist of experts in their field, they should be people you have a certain level of comfort in and trust. Without trust, a good relationship, and comfort level with your advisory team, you might be afraid to ask certain questions, or neglect to ask questions completely. Communication between you and your advisory team is key. They need to know your expectations so they can openly provide guidance and add value that can enhance your business.
After you consult with trusted advisors, it’s easy to do what everyone else says because of self doubt. Somehow, you have to remain confident in what you’re doing and your abilities. You have to trust that the work you’ve done to gather information is enough to lead you to make the best decision possible with the information available at the time. Part of that decision-making process is trusting your gut instincts. At the end of the day, after you’ve done your due diligence, it’s important to go back and trust your gut because it’s there for a reason.
Mistake #2 – Lack of knowledge about business structure
Talking about business structure isn’t the most exhilarating topic of conversation, but don’t fall asleep on us. We often see business owners with a lack of knowledge and understanding about their business structure and we don’t want you to fall victim to this common mistake in business. Let’s start with the basics. With any business structure there are three main considerations, including a business side, a legal side, and a tax side. All three have to work together in order to find the best fit for you, your business and your goals.
For example, a partnership is a form of business in which two or more people share ownership. Partnerships are the stickiest business structure entity that you can elect, meaning they can be great when things are going well with your business, but can get tricky when issues arise. So, it’s important to completely understand the implications of the structure you’ve elected and what that means for each owner involved.
The importance of the trifecta (business, legal, tax)
In any business structure the business side, legal side, and tax side have to work together. This may not be something you focus on when business is going well, but when things aren’t going well issues will quickly rise to the surface. In order to ensure the least amount of heartache, it’s important to completely understand how your business structure works in all three key areas.
When things aren’t going well, what does your partnership agreement say? What if two people have signing power on the account, you don’t have proper internal controls and one partner liquidates? What does your partnership agreement say? Are you going to go into arbitration?
These difficult conversations must happen when things are going well in order to safeguard your business and everyone involved. No one makes the best decisions in crisis. You want to ensure that all parties understand the risks and benefits, and how the business structure, tax structure, and legal structure work together. Once you have your structure and organizational documents completed, there should be transparency for how the business operates and ownership structure, etc. That way if an issue does arise, the business structure and all legal documents are in black and white, which can greatly reduce stress and anxiety amongst all parties.
Mistake #3 – Letting daily issues distract from long-term goals
Another easy pitfall business owners find themselves in is getting caught in the day-to-day fires that need to be dealt with rather than focusing on what’s important long-term. In order to know and understand what’s important for your business over time, you need to have an established vision with long-term goals. If you have not defined your vision, or want to review information about setting your long-term goals, check out our very first episode of our entire podcast episode #01: Strategic Planning – Vision & Long-Term Goals.
With your long-term perspective clearly defined and on top of mind, you can make appropriate business decisions. At times, there may be a short-term sacrifice in order to achieve your long-term goal. The issues you’re dealing with today are important, but don’t get so wrapped up that you can’t keep sight of what you truly want to achieve in the future. The key is having a clear understanding of your short- and long-term objectives, balancing the two, and remaining flexible.
Mistake #4 – Failing to invest
The concept of focusing on long-term objectives ties directly into the next mistake in business – failing to invest in their business. When we say investing, this can encompass investments in money, time and effort.
A lack of investment can lead to larger issues down the line. In business, every dollar and minute of your time counts. That means you have to be strategic about what you choose to invest in when it comes to the future of your business. We’ve seen time and time again, business owners who want to succeed but aren’t willing to invest upfront to lay a foundation that will help them reach their long-term goals. You have to determine what you are willing to risk to obtain the reward, which involves some cost-benefit analysis.
Seeking solid business advice from a knowledgeable professional costs money. This shouldn’t cost you your life savings, but if you are looking for good advice for $500, it doesn’t exist. If you’ve received business advice at a price that seemed too good to be true, you may want to consider a second opinion. For instance, we (PJS & Co. CPAs) provide significant service to our clients. We pull industry-specific statistics, review and understand their differences, and identify where you need to make improvements, lending decades of experience to the process. This kind of work takes time, knowledge, and expertise, which will take an investment but will also provide the data and guidance needed to push your business forward. Become knowledgeable about what your business needs, what that costs, and when it’s the right time to act.
Mistake #5 – Inability to adapt
The inability to adapt and make adjustments in your business can stifle success. 2020 is a great example of a time when businesses have had to take detours to keep their business afloat so at some time in the future, their long-term objectives can be reached. No one expected businesses would be forced to close their doors for an extended period of time. Some businesses who adapted to the “2020 normal” and were able to reach their customers differently than they’d planned, survived. Remain flexible, because in times like this your adaptability can give you a better chance of survival. When you acclimate and adapt, you face better odds of meeting your goals.
Mistake #6 – Not asking questions
Not asking questions is the last common mistake we will talk about today. We are ending with this mistake because we run across it quite often. In fact, not asking questions impacts all of the other common mistakes we’ve talked about already because it prohibits you from discovering other potential mistakes too.
One reason people don’t ask questions is due to fear. That fear can stem from a place of insecurity and self-doubt. Maybe you think you won’t sound intelligent since you should already know the answer. Maybe you already know the answer, but it’s not what you want to hear. In business, you have to be bold enough to walk through the fear. Be willing to ask, and to be asked, difficult questions. If you get an answer you don’t like, step back and really reflect on that from an all-encompassing perspective.
Be honest and respectful
Not everyone has to see eye-to-eye all the time. However, as professionals you and your advisory team should operate from a place of honesty and respect. You’ll feel more peace and function efficiently when you are honest. If you’re willing to ask, and be asked, hard questions there’s a mutual respect that develops between you and the other parties involved. Open, honest communication can open the doors for value and knowledge to be transferred between all parties. Sometimes questions can’t be answered right away. It’s more than acceptable to ask for time to process the question and think through how to best provide an answer.
As we start off a new year, we want to thank all of our vendors, clients, podcast audience members, friends and family. Because of you, we’ve been blessed with the ability to learn an incredible amount of useful information that we get to share with others, like we did today. We hope you enjoyed hearing about common mistakes we’ve seen in business, and ways to avoid those mistakes. As virtual CFOs and CPAs, we want to equip you to trust your gut, seek valuable advice from professionals, understand the nuances of the different business structures so you can choose what’s best for your company, balance what’s important right now with your long-term objectives, and take necessary steps to invest at the right time and right areas, of your business. If 2020 taught us anything, it’s to remain flexible and make adaptations when necessary. Lastly, don’t be afraid to ask questions. You are your business’ biggest advocate.
Links mentioned in this episode: