Tuesday, March 18, 2014

Mistakes entrepreneurs often make

This is the fourth in our series about mistakes entrepreneurs make.  We have talked about the perils of not having a business plan, the problems partners run into if they don't have a detailed, written operating agreement and how a business can suffer from not having good accounting right from the start.  This week we will discuss how poor communication skills can hold a business back.

Prompt, courteous and accurate communication is important whether you are dealing with a customer, a vendor, a colleague or an employee.  We have had numerous issues come up due to poor communication from clients.  It is very important to let your accountant know immediately if you receive correspondence from the federal government (IRS) or the state.  Filing requirement change frequently and penalties can occur if you are notified that you must file your payroll or sales taxes monthly instead of quarterly and you don't do so.  Your accountant can't do this if you don't let them know about the change.

It is also important to deal with customers quickly and politely.  While the customer isn't always right, you need to consider all aspects of the situation before you respond.  Even if they are wrong or being unreasonable, you must consider the downside to responding negatively.  It is usually better to try and compromise if possible to maintain goodwill.  If the cost of compromise is too high, at least maintain your positive tone and don't respond with a nasty tone.

The same is true with vendors.  If you have cash flow issues, it is important to be upfront with everyone.  Don't make promises you can't keep.  If you negotiate for extended terms, make sure you can meet the expectations.

When dealing with employees, make sure you have all reviews and discussions documented whenever possible.  It is a good practice to have both the employee and the supervisor sign the review form to document that the discussion with the possible repercussions took place.  This can be helpful if ending an employment relationship becomes litigious.

If you cannot respond to an email from someone in a reasonable period of time, make sure you at least acknowledge the email and let the sender know when to expect a detailed reply.

Good communication skills can help a business run smoother and more profitably.  Small business owners are busy and usually wear multiple hats, but they still need to take the time to be good communicators.

Wednesday, March 12, 2014

Mistakes entrepreneurs make: Part III

We get the majority of inquiries into our services in the first quarter of the year.  This is when people realize that it is time to file income taxes and that they don't have the business information organized for tax preparation.  So we get the call asking for help corralling all the receipts and deposit slips and other pieces of paper so the taxes can be filed.

A funny thing happens whenever we do this: the business owner is shocked at how much he/she spent on things.  "I spent that much on office supplies?", "We spent that much on packaging materials?!", "I couldn't have spent that much on meals during the year!".

You just can't run a business without financial statements.  Knowing how much money you have in the bank is not the same thing as knowing how much you are spending on various elements in your business.  Trying to run a business by looking at a checkbook balance just doesn't cut it.  The time and money you put into establishing proper bookkeeping/accounting will be worth it.  You can see right away that all the pretty office supplies are eating into the amount you have available for advertising and you quit visiting Office Depot.  If you don't have a P&L to study, all you know is that you don't have enough money to place that radio ad you wanted to have.  You don't know why you don't have the money or how you can cut back to save the money.

Cash flow is crucial at all stages of a business's life, but never more so than during start-up.  That is why an entrepreneur should establish accounting procedures before launching the business so they know right away if they are deviating from the plan and if changes or cuts need to be made.  So do your accounting-you will get the answers you need to run your business and you will be ready come tax time.

Wednesday, March 5, 2014

Mistakes entrepreneurs make Part II

As we discussed last week, there are several common mistakes entrepreneurs make with their businesses.  Not having a solid business plan is one.  If the business is owned by partners, not having a detailed operating agreement is another.

Beth and I have a very detailed operating agreement.  We were friends before we became business partners and we wanted to remain friends no matter what happened with E & S Entrepreneur Advisors LLC.  We worked on this for over a week and it is in writing.

It is amazing how often you can think you are in agreement when you are talking about a subject, and then when you see it in writing, you do have differences to work through.  We recommend having each member of the business answer a series of questions designed to create the operating agreement and then compare answers.  There will always be areas of disagreement and then there must be compromise if the partnership is to work.  If the members can't come to a compromise, they should not open a business together.

This is true with family members as well.  Spouses, parents, siblings and other family relationships can be strained when running a business together.  Setting up a formal operating agreement can help.  We recommend designating an arbitrator at the outset to help resolve disagreements.  This should be someone everyone agrees on and is someone everyone feels is unbiased and will have the best interested of the business in mind.  This is only one facet of the operating agreement but it is a key one to getting decisions made while maintaining harmony.

Other things to agree upon are the duties of each member, compensation of each member, financial responsibilities of each member and how the business will be dissolved should the need arise.

We have seen several instances where a business didn't have a detailed operating agreement and in every case, the business failed or the relationship failed.