Many times small business owners make entrepreneurial mistakes that makes them look like a child. During my 20+ years of experience I have concluded that most business ventures fail not because it was a bad idea, but because it was poorly implemented or entrepreneurial mistakes that end up driving the business into a downward spiral.
If you are a startup business, what will set you apart from the rest is having a plan then having the discipline to act on it. Mistakes are part of the growing process. However, it is not healthy for your business venture to be making the same mistakes over and over.
Mistakes are common in the business world. They also can make you a more cautious and wiser businessperson. Successful entrepreneurs are not those who never make mistakes. What makes them successful is that they learn from the mistakes. Repeated mistakes will become costly for your business venture regardless of the stage of your business.
“In the real world, the smartest people are people who make mistakes and learn. In school, the smartest people don’t make mistakes.” – Robert Kiyosaki
Here are five costly entrepreneurial mistakes you must avoid while starting and growing a business:
1. Avoid disorganization. It is cheaper to address disorganization than to address the consequences of disorganization. Disorganization creeps into our lives and does not want to leave. In our business starts with a few papers on our desks and later it becomes a pile. Later we accept the pile as being part of the furniture. However, disorganization not only hurts your deadlines, projects, and leadership accountability, it will cost your companies money in lost hours and missed business opportunities. Surveys have shown that disorganized employees who earn $50,000 a year can cost companies an estimated $11,000 a year in lost hours. Not good for your enterprise! Whether it’s office and desk clutter or a flood of unorganized emails every day, lack of time management can hurt the entire company.
It is cheaper to address disorganization than to address the consequences of disorganization.
2. Lack of delegation – I hear this one very often “I can do it myself”. However, most business owners do not have the legal, accounting and tax knowledge they need to stay out of trouble. Their strength is the development of their business, but they won’t invest in business planning, legal advice to properly set up their corporation. Some of them want to go the “cheap” way, so they purchase TurboTax and Quickbooks.
Even if you have the understanding of accounting and tax, should you be doing your monthly accounting? or should you focus on the growth of your company?
3. Not collecting sales tax for online sales – Many small-business owners assume that because they don’t pay sales tax on online purchases from, say, Amazon, they don’t need to collect sales tax from their own customers. But if they’re selling to customers within their state, and the state, county or city has a sales tax, then the entrepreneur is on the hook to collect and submit those taxes.
4. Treating all workers as independent contractors – This is one of the most common of entrepreneurial mistakes that can end up being too costly to a business owner. In the desire to reduce payroll taxes, many small businesses fail to properly classify their workers and treat them all as independent contractors. This issue comes up when independent contractors you’ve hired are determined by the state to be employees and therefore subject to minimum wage and overtime pay, unemployment insurance, payroll taxes and workers’ compensation. If you classify your workers as independent contractors, you must treat them as independent. Typically, independent contractors can make their own hours and have control over where, when, and how work is completed. If the IRS determines that you incorrectly designated an employee as independent, you may be subject to penalties for not collecting Social Security taxes, and for more than 40% of workers compensation for the specified time period.
5. Thinking that your hobby is a business – You can convert your hobby into a business. However, one your cross over to the land of entrepreneurship you must treat the venture as a business. For example, the “business” you started, selling widgets online, consistently loses money (those trips to Widget Land are expensive, after all). The IRS may decide that you don’t have a business at all, but merely a hobby. If the IRS classifies your business as a hobby, you’ll have to prove that you had a valid profit motive if you want to claim those deductions. The IRS expects that if you start a business, you intend to make money at it. If you don’t, your business is likely to be a hobby. To determine if your business is a hobby, the IRS looks at numerous factors, including the following:
Do you put in the necessary time and effort to turn a profit?
Have you made a profit in this activity in the past, or can you expect to make one in the future?
Do you have the necessary knowledge to succeed in this field?
Do you depend on income from this activity?
Are your losses beyond your control?
The general rule is that if you have not turned a profit in at least three of the prior five years, the IRS will categorize your business as a hobby. This may be extended to a profit in two of the prior seven years in the specific case of horse training, breeding or racing. This is, presumably, because these endeavors involve a great amount of risk.
You can increase the success of your business venture by eliminating the common entrepreneurial mistakes mentioned above. What do you think? What is the biggest mistake you made as an entrepreneur?