Starting a business can be exhilarating and terrifying all at once. You never want to be the one that says, “If I knew then what I knew now, I never would have…” As business consultants, we hate to see small business owners paying the price for mistakes made due to lack of information. Therefore we are providing this list of five easily avoidable errors that small businesses make:
- Investing your Retirement Savings into your Business.
Many receive their 401K or IRA statement and are tempted to use the extra capital for their fledgling business. Don’t do it! Your retirement should be protected like Fort Knox. If, for any reason, your business doesn’t succeed and you have to file personal bankruptcy, your retirement is generally safe from
creditors. That fund will give you something to fall back on even if you come close to losing everything. - Deciding on a Sole Proprietorship
Yes they are easy and fast to set-up, but sole proprietorships leave you vulnerable to have your personal assets taken by business creditors. Your home, bank accounts and possessions are free game to creditors and they will not hesitate to take them. A limited liability corporation (LLC) keeps the liabilities where they belong – in your business. - Neglecting to Read the Fine Print
Although you may have already established your business as an LLC, your personal assets may still be at risk. Business credit cards, bank loans, tenant agreements and more may have “personal guarantee” language that will require you to personally pay your businesses debts. Look for that kind of language in
every agreement you sign and strike it from the contract. - Forgetting to Get Insured
According to entrepreneur.com, about 8 million business owners operate out of their homes in the United States. Home insurance policies do not offer the same level of coverage that most small businesses need, especially when their homes house expensive equipment. General liability insurance offers a broad range
of policy options at a relatively inexpensive cost. - Being too Trusting
Unfortunately theft is highly common in small businesses. Sometimes it is as small as a few office supplies and sometimes it is as serious as an employee rerouting funds to their personal accounts. Watch your books and inventory and keep an eye out for discrepancies. If you’re not sure how to do it, find an expert
that can review your books on a quarterly basis and help you identify and address any red flags.
Most small business owners are optimistic by nature and don’t want to address the possibility of things going wrong. By preparing for the worst, you will ensure that you are protected and set-up for success. Minimize your risk to save yourself from headaches, heartaches and big money losses.
For more business tips, check out our article on how to avoid the top five financial mistakes that can put you out of business.