Six deadly mistakes small businesses must avoid in 2021
Off-and-on again government regulations and rapidly evolving economic conditions have created uncertainty, but plenty of opportunities for small businesses remain. Success is within reach, but it takes a studied approach to avoid pitfalls.
Leaders must focus on revenue, but why a business fails often has less to do with revenue and more to do with blind spots. Specifically, there are six common mistakes that often prove fatal to small businesses.
Lack of financial planning leads to many problems that surface even before the business generates any revenue. Startups are notorious for underestimating the capital needed for the first six to 12 months of operation. Last year provided unique funding opportunities with the Paycheck Protection Program (PPP) small business loans, but so many businesses did not qualify due to lack of financial records.
Many also had income tax returns that focused on creating a zero-dollar tax liability instead of focusing on accurately reporting the result of operations. This limited their ability to secure loans.
Businesses must plan not only the occurrence and timing of financial inflows and outflows, but the resulting tax and cash flow implications, too. Planning prepares leaders to pay any tax liability and address in advance any projected capital limitations.
Failure to budget business owners make even with they start with the right financial planning. Rapid growth is often the culprit. Entrepreneurs frequently fail to use information on hand to build proper budgets that inform decisions to invest or cut costs and support scalability.
Cash flow woes are the first warning sign that a business needs to adjust its budget. Being prepared allows a business to continue operating successfully despite economic bumps in the road. Ultimately, proper budgeting enables future growth.
No marketing plan is a common shortcoming that is more frequent than one might guess. Entrepreneurs with a big vision often underfund marketing activities. Many of them have a few pet plays they plan to use, but a comprehensive marketing strategy is needed to help drive sales in highly competitive conditions.
Entrepreneurs also misperceive marketing as an expense instead of an investment. Sadly, the marketing budget is often the first thing cut in tough times. Generally speaking, the marketing investment is directly related to a business's projected increase in sales.
If the expectation is conducting marketing activities will increase sales, then why cut them during tough times? A professional and well-funded marketing plan will help ensure the business's value proposition is sustainable, in good times or bad.
Personal and professional bank accounts combined is a frequent problem for small business owners. They co-mingle funds creating unintended financial, tax and legal liabilities. Business owners should seek professional accounting and tax advice to separate their accounts and correct the situation right away.
Unqualified business advice is everywhere. As natural leaders, business owners instinctively seek input from others for important decisions. However, there are unintended consequences in taking strategy, tax, and financial advice from family and friends instead of a qualified professional.
It can hurt revenue and even create costly tax liabilities. Business owners should have a trusted inner circle that offers input, but when it comes to business strategy, tax and financial decisions, they should accept the counsel of a professional only.
Misusing an LLC is one of the most common new business mistakes. There is an entrepreneurial boom fueled in part by the growth of e-commerce across the country. Many follow online advice and form an LLC for their business without understanding how an LLC is taxed.
They file their returns incorrectly, creating tax debt and liabilities. It is important for the business to be properly structured upfront, but even if there is an unfavorable setup, it still may be possible to get things corrected with qualified legal and tax advice.
• Gena Jones is an attorney, CPA, Certified Tax Resolution Specialist and a business coach. She represents clients before the IRS and helps entrepreneurs write their business success stories, ensuring they have the proper succession and estate plans in place.