Leadership

Beware these three common and deadly entrepreneur mistakes

Beware these three common and deadly entrepreneur mistakes

I know that you love your business. As complex as it can be at times; it is “your baby.” And you want to protect it.

For most of my career, I was returning failing businesses back to financial health. With each, I studied what created a successful business and what contributed to a business failure. The information that I gathered crossed several industries and business models. The items I will discuss are not all the mistakes that can cause irreparable business damage, but they are the top 3 most deadly mistakes entrepreneurs make.

But I want you to be encouraged. The disciplines I cover here will help your business maintain long-term success. The principles work together in your business model, so pay particular attention to the third discipline. Let’s dig in.

First, let’s discuss the realities of what logically happens as a new business starts to develop. When you started your business, your expenses were low and very visible. You were more than likely covering your personal expense and the direct cost of your product and services with as little cash outlay as possible. That is good, normal, and relatively simple.

How can I ensure a strong cash flow from the start of my business?

To manage your expenses well, you must first know their details. And that is easy when you are a startup. But you must also be sure that each deal you sell will make a profit, and you must know that before making each sale. If, as you launch your startup, you are sure that every sale that you make will be profitable, you will always have strong cash flow and profitability. Your small business will be safe, and you can scale comfortably. Form this critical habit for success early.

But the new entrepreneur can be blinded by the mindset that says, “just sell as much as I can, and everything will be fine.” Or, “let’s get bigger sales since that will bring in more money.”

The trap is that while selling more is good and larger deals can be a boost, if your deals are unprofitable, you will destroy your cash flow, and the business will not last long. So, make sure that every sale will make a profit. Do the math. This is necessary homework.

This leads me to a common mistake that understandably creeps up on many startup companies.

How can I successfully manage expenses as my business grows?

You must manage the profit of your business at all times, and one component of doing that is to continually monitor your expenses and the inevitable changes that will occur as you scale. Many entrepreneurs fall into the trap of overlooking the changing expense structure currently required to deliver their products and services during growth.

As your small business grows, you will add employees, business services, fees, and necessary overhead to operate efficiently and deliver your products or services. It is easy to lose track of your ‘actual’ costs as your customers grow and your business scales. If you did an excellent job of ensuring profitable sales when you started your business, you must continue to do so as the business changes.

Constantly monitor your expense and think about:

 a) how to decrease the cost of delivering your products or

 b) how you price your products. 

There are different ways to do both if you know your costs. Here are some other questions to consider as you seek better profitability. Will a different pricing model work? What pricing models should I evaluate? How can I be sure I will create profit one to two years from now?

If you are not sure if this is an area of concern for your company, start comparing the totals of your expenses to deliver one product and compare it to the price you are charging. The lights will come on very quickly, and you will know what to do. This discipline must become part of the continual progress of your company. I recommend that you review expenses and profit at least every six months. If you are growing quickly, you should do it more often. This problem can get out of control very quickly.

Am I the MVP in every area of my business?

Every entrepreneur is the MVP of their business. It is how you got it off the ground. As I said earlier, it is your baby, and no one knows it better than you. After all, at the start, you did it all. But now there are other people involved, and they are not YOU. When mistakes are made or a negative customer situation arises, you fix as many of these issues as possible because, logically, you can do it more quickly than anyone else. Beware! You are in the trap.

The trap is a mindset that you MUST stop. “If I’m not involved in everything, my business could fall apart. And since I can fix things the fastest, I should do it.” If everything is essential to your time, the critical things will eventually suffer, and the business will weaken and potentially fail.

Sometimes this problem will persist if your forte is not “training.” You are the doer. Training takes time, and you need to devote time to it. Growth can be highly chaotic if you do not invest in your people to do essential jobs well. It probably feels like you don’t have time for training, but if you neglect this, operating your business will become very difficult.

So, be honest with yourself; are you in this trap or headed for it? Litmus test: Ask yourself; Must you make every meaningful decision?

A final thought on this: if you don’t solve this one, your business will NEVER scale. Train, delegate and then let your team fail and grow. It is a necessary long-term investment in your company.

Is business finance something I need to learn even if I’m not good at math?

Now let’s talk about the biggest mistake young entrepreneurs can make. Do you understand the numbers of your business? Can you reasonably use your financials to project what will happen or where you will be as you make critical decisions? If you can’t, you don’t properly understand your finances. 

This weakness is most deadly because when the inevitable ‘business storm’ comes, it will create a financial surprise that you may not understand or be able to survive by managing or adjusting your finances properly.

However, you must not delegate understanding of your financials and risk management to anyone else. You are the ultimate decision-maker, and you must make decisions based on your understanding of your finances. Your job is to control the risk to your business. Do not delegate this responsibility. I suggest that you become proficient at understanding the numbers by hiring a part-time controller and setting up a training program. Remember that you are a business owner. Neglecting or ignoring your finances is a deadly mistake.

To Summarize:

To sustain healthy cash flow for the short and long term, each deal you sell must be profitable. Then as you grow, monitor your expenses and profit and adjust appropriately. Do this often, and you will maintain profitability.

Get out of MVP mode as soon as is practical. Train your team members, delegate, and then let them learn by the occasional failure. You are building depth and putting your company in a position to scale.

Make becoming proficient in understanding and managing your finances a top priority. You are responsible for managing the risk of your small business, and your numbers are one of the best tools that you have to avoid undue risks and surprises.

There are many ways to avoid the traps that young entrepreneurs make. And some of those solutions are specific to the industry or product/service you are offering. But the “real solution” is a way of thinking about your business that will keep you distant from danger. You have taken the first steps. Now go fulfill your dreams. You can do this!

I enjoy discussing entrepreneurial companies. If you want to talk more about this, click below for a free session with me.

https://calendly.com/dave-kerford/

Also, join our Bulletproof Business Community. It is a forum of wisdom and insights from our C-suite and Business leader members who have created or are creating what we call Bulletproof Businesses. As a first step to joining our community, click below to sign up for our newsletter.

https://davekerford.com/subscribe/

Enjoy!

Leave a Comment

Accelerate Your Success

Book a free,
30 minute session with Dave
today.

There’s no commitment, pressure, or obligation.
All calls are confidential.

Related Content.


Sorry, no posts were found.

Success Stories.

View stories and testimonials from senior leaders
who have worked with Dave.

Get In Touch.

Change Starts With A Single Step.

Subscribe For Updates.