HY Accounting Blog

The 7 Deadly Sins that Business Owners Make

Running your own business is an amazingly rewarding and gratifying experience, if done correctly. The sad reality is that the small business failure rate is so high because owning and running a business is not done correctly. 

It’s no surprise that over 50% of businesses fail in the first 3 years, and while the statistic is pretty alarming, it doesn’t have to be your story if you avoid these mistakes at all cost. 

1. They bought a ‘job’

The best thing about being employed is that you leave your work at work (most of the time). This never happens in business, because you spend most of your day working in your business, only to then come home and do those administrative things you may not have been able to do during the day. The reality is that you may be making more than you otherwise would’ve made working for somebody else, but you’re likely working harder. 

If you want your business to succeed then it needs to be bigger than you. You need to spend time working on the vision, values and purpose of your business. You also need to spend a consistent amount of time weekly working on your business i.e. the strategies for growth.  

The longer you’re in business the more you’ll find that success is less about delivering or the ‘doing’ and more about how you manage your business and the strategy you have in place for the long term.

2. DIY Bookkeeping

The cost of good bookkeeping and accounting can be expensive, and rightly so. It’s highly technical work that requires a lot of ongoing training because the laws are constantly changing. Your numbers tell the story of your business, and if your bookkeeping is bad, then the story of your business isn’t a true representation of your business. . 

I’m a big believer in DIY Bookkeeping when you’re starting out for a few reasons: 

  1. It helps you build a connection with your business and your numbers 
  2. It reduces the cost of your overall accounting and bookkeeping 
  3. It helps you appreciate just how difficult the work of your accountant and bookkeeper can be 

However, I certainly would not recommend you undertake your own bookkeeping without proper training and guidance. So if you choose to do your own bookkeeping, pay somebody to train you and provide ongoing support so you know that your numbers are correct. 

There will inevitably come a point in time when you will need to hand over the bookkeeping to somebody as you will need your time to focus on revenue creating activities and not finance or administration. Let’s do a quick calculation. Let’s say you charge yourself out at $50 per hour. If it takes you 1 hour per week to manage your books and paperwork that works out to be about $200 per month of time that you aren’t recovering in your invoices. Let me ask you this, what else could you have done with that 1 hour per week?

Think of it this way, without the right foundations a house can’t be built, or at least it can’t be built well. Good Accounting & Bookkeeping are the right foundations for your business.

3. Not taking advantage of Technology

COVID has been difficult to say the least, but one of the benefits of the current climate is that it has forced businesses to adapt to technology whether they like it or not. Technology is here to stay, so if you want your business to succeed ensure that you’re embracing technology wherever possible. 

There will be a learning curve with any new technology that you implement, however that is a small price to pay for the ongoing time saving of having that piece of technology in place. We live in a technological age and as such we need to fully embrace the technology available to us if we want to succeed, because if we don’t our competitors will. 

4. Not enough focus on Sales & Marketing 

Do you have a sales process and plan in place? Do you have a marketing plan in place? Is it regularly reviewed and updated? Your business needs to have these in place at a minimum, because without a consistent source of opportunities in your business and without being able to convert these opportunities into clients, you will not have a business for very long.

Start by identifying your target customer or target market, and the best way to do this is ‘market research’. The best businesses are constantly engaging and researching their target markets to ensure that they are remaining competitive. The second you begin to assume your target market is the second that your offering becomes obsolete.

Set aside a recurring monthly budget on marketing, and use your marketing plan and your target market to drive the avenues that you will use to create opportunities. Once you have generated interest, set aside a consistent time every week to prioritise sales as this consistency will compound. Use this time to convert your opportunities into customers. 

If you’re not comfortable with selling, then you have no choice but to get comfortable with selling, because a business owner is really a salesperson. 

5. Improper Pricing 

Proper pricing is like walking a tightrope. You must balance what you need to remain profitable and what your customer is willing to accept. It’s a constant challenge, and one that you will likely never get perfect. Even a good pricing model needs to be regularly reviewed to ensure that it is reflecting the current economic environment. Sadly many businesses don’t price their work correctly, and this is a big part of the overall financial mismanagement that leads to business failure.

At a very high level your pricing needs to includes not only direct costs and labour, but also overheads. Often businesses fail to include overheads in their pricing calculations and the ‘margin’ they wished to make is eroded by the overheads they failed to capture in their pricing model.

What your customer will accept is a function of the value that you’re providing them and typically if value is greater than price then your customer will accept, but if value is less than price you’ll have objections to overcome. 

Everything in business is related, and pricing directly relates to your sales and marketing. If your marketing is correct then you would only be dealing with your ideal customers and you would have a detailed understanding of the value you’re providing. If you’re effective at sales then you will be able to properly articulate your value and the benefits of working together to a point where you have minimal objections to overcome. 

6. Using your business as your personal piggy bank 

Your business is not your personal bank account. This is the single biggest cause of financial mismanagement that leads to business failure. Treating your business bank account like its your own bank account is the single biggest reason for business failure. Irrespective of your structure you must keep your business and personal life separate, which means setting up separate accounts for your business and transferring one amount each week to your personal account to pay for things in your personal life. Working with clients we advise the following: 

  1. Setup at least 2 bank accounts in the name of their business (one for trading, one for savings/tax)
  2. Complete a personal budget to establish how much they need in their personal life each week to survive 
  3. Transfer the amount they require to their personal bank account to cover their personal expenses 
  4. Allocate at least 10% of their revenue per invoice into their savings/tax account

This is by all means not an exhaustive or comprehensive list, but it gives you some basics around good financial management.

A good accountant can make all the difference here because they will look at you and your business as an overall group and determine the most tax effective outcome for your ‘group’, because if you don’t have this properly under control, there could be some pretty serious tax consequences. 

7. Leaving sales to slide 

It seems almost silly to include it, but it is very relevant. Sales includes the whole sales process, from enquiries, to quotes, to invoices, to collection. Leaving your sales to slide will spell disaster for your business. 

Do you have a process for collecting your income? Do you automate the invoice reminder process? What terms do you offer in your invoices? How do you accept payment?

Sales are your lifeblood and without them you won’t have a business for very long, but you would be amazed at how many businesses don’t have rigorous processes around their sales. If there are a few non-negotiable things in business, sales is one of them.

Something to think about: 

  1. Use invoice software to create your quotes and invoices
  2. Create credit policies within your invoicing and make sure your customers are aware of your invoice terms and any charges which apply for late payment
  3. Ensure that you are offering multiple payment methods (cash, credit, debit)
  4. Turn on automatic invoice reminders
  5. Follow up consistently and somewhat annoyingly if invoices are overdue.