The 10 Biggest Business Blunders (and How You Can Avoid Them) Blunders 1-5

Why do businesses fail? Is it a lack of money, poor planning, or a failure to market? It can be any of those things and others. In this excerpt from the new book by David Finkel and Diane Kennedy, learn about the 10 biggest blunders businesses make and get tips for avoiding them.

The following is an excerpt from the book
The Maui Millionaires for Business
by David Finkel and Diane Kennedy, CPA
Published by John Wiley & Sons, Inc.; October 2007; $24.95US/$29.99CAN; 978-0-470-16495-2
Copyright © 2008 David Finkel and Diane Kennedy. All rights reserved. 

Blunder # 1 : Taking Your Eye Off of Your Cash Flow

The number one reason that businesses fail is lack of cash. Period. End of story. Some of the issues that can bury a new business are:

• Under-funded growth.
• Lack of adequate record-keeping.
• No review of financial statements.
• No control over business assets.
• Unnecessary infrastructure.
• Having to wait for payment for sales.
• Sacrificing short-term cash flow for long-term growth.
• Thinking that because they have a sale they have cash.
• Spending on inventory.

Strategy: Watch your cash flow and do whatever you can to protect it. In each of the previous examples of mistakes that cause cash flow problems, there was simply a lack of consideration about cash flow. You wouldn’t grow too fast if you didn’t have the cash, if you knew to watch the cash. You’d have good financial statements and review these on a regular basis. You would practice good control and make sure you weren’t overspending when you couldn’t afford it. And, you’d make sure you first had the cash flow automatically working before you took on any more projects or expansion. Cash flow is the lifeblood of your business. The next five blunders are closely related to blunder one.

Blunder #2: Improper Management of Accounts Receivable

Accounts receivable are the amounts that your customers owe you. The best way to handle accounts receivable is to not have them! Get paid in advance or get paid at the time of service.

Strategy: If you must have accounts receivable, front load your collection effort. The longer you wait to collect the money, the less chance you have of getting it. Collection agencies know this. After all, that’s why their businesses exist in the first place. Yet, most businesses only put their energy into collection after 60 days have passed. Imagine how much more effective it would be if that same effort was put into collecting that money at the beginning, as soon as the service has been provided.

Blunder #3: Over Expansion

If you’re a forward planner, over expansion can be a real danger. You know there is more business coming and so you staff up and invest in inventory, capital assets, and additional space. The problem is that all this growth is done without the revenue to cover the additional cost. The new business, if it indeed does come, might be too little, too late. Your business is now vulnerable.

Strategy: Plan for just-in-time growth. Remember to outsource and watch your cash flow during expansions. It might be best to take out small, short-term loans in the beginning to make sure you have enough cash to handle all the other aspects of growth.

Blunder #4: Too Much Time Setting Up Instead of Getting Business

There are some business owners who like everything planned out and organized before they start. It’s a great skill, but it can be death for a new company. Often it’s an excuse to hide behind instead of going out there and asking for the sale.

Strategy: Sell first! Get money in the door, otherwise, you don’t have a business. You need to collect money and have cash before you can start organizing anything.

Blunder #5: Selling by the Hour

If all you sell is your time, it’s hard to build a true Level Three business. If you sell by the hour, you are operating in the commoditized world competing against everyone else. Find a way to capture your value in a comprehensive solution, or a project result, or a value proposition, so that you can create and charge for your value independent of your personal time involved in fulfilling. It’s also a much easier transition from a Level Two to Level Three business, where you are transitioning away from day-to-day work in the business.

Strategy: Look for the unique value you create with your ideas and work. If you have a successful Level Two business, or Level Two skills, then you can transition easily to Level Three once you let go of the need to sell by the hour. Begin by charging a flat fee for the service and then systemize and optimize the service so your team, technology, and systems fulfill your promise in a way that creates more value for your client with lower cost to your business. And finally, turn your knowledge into an information product and sell this as an additional revenue stream.

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Copyright © 2008 David Finkel and Diane Kennedy. All rights reserved.

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Author
David Finkel is one of the nation’s most respected wealth masters. A former Olympic-level athlete, he is a business and real estate multimillionaire and the co-creator of Maui Mastermind, the world’s most exclusive wealth retreat™. He is also the bestselling coauthor of The Maui Millionaires (with Diane Kennedy) and The Real Estate Fast Track, both from Wiley. His how-to financial articles have appeared in over 4,000 periodicals across the United States.

Diane Kennedy, CPA, is a top real estate author and investing expert. She is the founder and owner of DKA, a leading tax strategy and accounting firm. A past recipient of the prestigious Blue Chip Enterprise Award, she is also the author of Loopholes of the Rich and The Insider’s Guide to Real Estate Investing Loopholes, both from Wiley. // //