12/8/2021 Prev Next Email Share × Share On: BY Brian T. Horowitz When managing your small business and pursuing your entrepreneurial passion, you’ll want to avoid some costly pitfalls that can harm your bottom line. These mistakes could involve failing to understand the scope of work or allowing “scope creep” to occur, in which clients ask for more than is outlined in the contract, according to Steve Baker, vice president at the Great Game of Business, a boutique consulting firm specializing in open book management and employee engagement. Avoid the following mistakes that can be detrimental to your business when you’re starting out. Here are some expert tips that can help: 1) Giving Up Too Soon When you are a new entrepreneur, naturally you may have a fear of failure, and this type of thinking is called “confirmation bias,” says Amera McCoy, Ph.D., CEO at McCoy Consulting. Don’t give up on your small-business goals prematurely. “Before confirming all of your fears of failure, have a plan in place that outlines success and exit strategy,” McCoy advises. “How much are you willing to sacrifice before walking away? If you do not plan for this number, the likelihood of recognizing it too soon or too late increases substantially. Do not regret walking away due to lack of planning. Know your limitations and have an exit plan ready.” 2) Failing to Collect Sales Taxes It may seem common sense to plan for the amount of sales tax you have to report and pay, but many small businesses fail to take taxes into account. This costly mistake leads to audits, revoked licenses and fines, McCoy notes. “Avoid this mistake by having a point-of-sale system in place that tracks and reports taxes in addition to inventory,” McCoy recommends. “Always keep records of taxes and coordinate your account with the proper state and city agencies. Understanding how to properly collect, pay and track sales tax can save any business from a costly mistake.” 3) Neglecting to Pay Yourself Small-business owners often skimp on paying the salaries they owe themselves if they are worried about covering expenses. Although this may be a great idea at first, as you grow, you will need to pay employees on the payroll, McCoy says. “An owner with no compensation is not attractive to any bank,” McCoy explains. “The rabbit hole goes deeper and deeper for owners who refuse to pay themselves. Avoid this mistake by setting a salary for yourself, even if it is small. Set goals for increases over time; showing income will help you personally and professionally.” 4) Not Factoring in the Cost of Training New Hires Although companies are focused on recruiting new employees, they fail to consider the costs needed to train new hires and bring them up to speed, according to Baker. “Be sure to do the math and understand your true costs of training a new hire,” Baker advises. “Is it better to retain than to hire new?” To avoid the costs of training new hires, companies should think about retention as much as recruiting, he suggests. 5) Failing to Give Employees Line of Sight on Critical Data Companies can be profitable but still run out of business due to a lack of cash if they don’t give employees line of sight into how they are doing financially, according to Baker. Often employees lack clarity on whether they’re “winning or losing,” he says. Part of this clarity involves insight into the cost of rework, Baker notes. “If you have to do something twice instead of once, it costs you four to seven times the original cost of doing the work,” he says. This rework could be callbacks as contractors call them, according to Baker. Whether you’re “writing code or trimming trees,” this rework can eat into profitability, he adds. As you navigate around these mistakes, avoid shouldering the burden alone, Baker advises. Ask your employees to participate in meeting the company’s goals to set you up for success.