Top 7 Deadly Sins of Small Business Owners

Any small business owner can tell you that danger lurks around every corner when you are running a business. From accounting errors to wasted advertising dollars, to disputes with customers, there are a million different ways problems can arise that could spell doom for your business.

As a small business lawyer, I see both small and large mistakes by small business owners every day. I have helped small business owners navigate all kinds of problems. Sometimes these mistakes simply take businesses off track for a few hours or days; sometimes these errors torpedo the business entirely.

I believe you can learn a lot by studying the mistakes of those who have come before you and taking care to avoid a repeat of their mistakes. It is in that spirit that we put together the following “7 Deadly Sins” of small business owners.

Of course, not every small business will need to take heed of each of these items below, because every small business is different. However, we hope this list will give you ideas and help you reflect on how you can improve your business.

7. Avoiding Dealing with Problems.

“It’s not that I’m so smart, it’s just that I stay with problems longer.”
— Albert Einstein

Small problems, combined with neglect, lead to major problems. As problems develop, you need to take the time to address them, even if it means taking time away from your business.

It will take far less of your time and cost you much less money for you to address the problem in advance rather than letting it fester and grow.

One problem I’ve written about previously is the failure of businesses to take the time to choose the correct legal structure and craft a unique operating agreement tailored to the business and its owners. Failing to form a separate business entity is like driving around without car insurance. Sooner or later you may get into an accident, and you’ll be sorry you didn’t have insurance to help clean up and pay for the mess.

6. Not Separating Personal Assets from Business Assets

Small businesses are especially likely to make this mistake. Business owners take in revenue and put it directly in their checking account, or they use personal funds to pay for business expenses. Even worse, some small business owners never set up separate systems, including a separate checking account and separate accounting systems.

It’s crucial to treat the business as a separate legal entity with its own identity, or else should a dispute arise, the business may not be treated as separate and distinct from its owner. That means the owner may be held liable for all of the business’s debts.

5. Not Having a Business Plan & Not Implementing the Plan.

Many small business owners, especially home-based business owners, do not write down a business plan before they open their doors for business. It is very valuable to write down a business plan because it helps the business owner focus on the areas of greatest value which will maximize incoming revenue.

Too often small business owners move from urgent matter to urgent matter as they arise, rather than addressing less sexy, ongoing tasks which need to be addressed regularly, such as marketing or accounting. By having a business plan and sticking to it, you can avoid this problem.

4. Failing to Recognize the Short Feedback Loop.

Years ago, customers who weren’t pleased with the service or product they received had three primary options for expressing their displeasure: they could write a letter to the business, they could report the business to the Better Business Bureau, or they could tell their friends.

Today, the “feedback loop” is much shorter: customers can march out of a negative experience with a business and immediately write a negative review on Yelp or on any number of other websites, disparage the business on Twitter or Facebook, or even create negative videos that “go viral.” These issues create marketing and PR nightmares which require businesses to think strategically about how to fix the damage created.

Businesses should respond to any negative feedback immediately and publicly, by addressing the person’s concern in the same forum where it was raised. For example, Yelp allows business owners to respond to any comments, whether positive or negative.

Second, if this is a recurring problem, the business should generate its own content so that its search results are not drowned out by negative reviews. The business can do this by blogging, or generating photos or videos which show up in search results when potential customers search for the business.

Finally, if the criticisms continue, the business should think about whether there are any changes that can be made to the business which will result in less negative feedback.

I have seen small businesses fire employees for causing the business to receive negative Yelp reviews, which demonstrates just how significant Yelp reviews have become to certain companies.

3. Not Taking Time Off.

Small business owners often make the mistake of spending every waking hour working on their business, including evenings and weekends. If you keep that pace up, you will burn out and the business will come crashing down. A better plan is to make sure you are not present from time to time, or even for a portion of each day.

By not being present, you will be forced to have a backup plan in place so that the business can operate without you. In addition, you will come back feeling rejuvenated and with greater energy and drive than you would have had without the time off.

2. Not Documenting Your Processes.

You are not indispensable. If you treat yourself as indispensable, you will be just as miserable as if you were an employee rather than an owner. Of course, you are a key element of the business and your absence even for a few days will be felt, but you should not build a business that cannot exist without you.

You should take the time to document every task, duty, responsibility, and decision tree, preferably in a visual flow chart. Next, see what elements you can outsource, freeing up your time to work on new revenue-generating projects. Doing so will create a business that is able to function without you

1. Not Continuing to Build Your Skills.

Take time each day to continue your personal development. Your personal skills and knowledge have gotten you to where you are, so there is no reason you should stop developing those skills now. I recommend taking time to read and think for 30-60 uninterrupted minutes each day.

Did we miss any good suggestions? Let us know what other “Deadly Sins” you commonly see small business owners making in the comments below.

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John Corcoran is an attorney with Plastiras & Terrizzi in San Rafael, California (Marin County).  He advises clients about real estate/land use, general civil litigation, and small business matters.  He can be reached at  (415) 250-8131   or [email protected]



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