Most mistakes are not due to lack of intelligence – they are due to lack of information and/or prior experience, or an ego so big that it thinks it knows everything - which frequently happens with entrepreneurs. Don't get me wrong. I love entrepreneurs! It takes a lot of gumption and internal fortitude to start your own company and take on all the responsibility it requires, but here are some of the mistakes I’ve witnessed:
· A celebrity went on t.v. to pitch a unique product she created, and didn’t have any inventory. When thousands of orders came in, she was left with egg on her face because she had nothing to sell.
· A company with more than two million dollars in annual revenue went belly up because they didn’t know anything about basic bookkeeping.
· A CPA embezzled four million dollars from a client by talking him into letting her sign checks.
· A doctor committed suicide because he lost all his savings, as well as his mother’s, in an investment scheme that had multiple red flags he ignored.
· A contractor lost all his profit on a “spec” house because he built it over the adjoining property line. As a result, he had to hire surveyors and engineers to re-design all the lots on the entire street in the subdivision to avoid having to tear down the house.
· A retail sales company went out of business because they opened a second shop and failed to keep separate accounting records for the two stores. When sales declined and finances got tight, they had no way to analyze which store was having problems, so they closed both of them.
I’ve seen lots of good things in business, too:
· The start-up that had a hundred and fifty-thousand dollar profit its first year with more than 75 Google 5-star reviews.
· The start-up that opened business with a thousand dollar investment and was up to five million in revenue in four years.
· The start-up that stuck its neck out and put five thousand dollars in inventory on the shelf before it ran its first ad, and then sold out as soon as the ad ran, making good profits and putting the company on the road to success.
· The start-up that had an attorney draw up its legal documents (contracts for clients and purchase orders for vendors) positioning itself as a professional organization and generating a positive cash flow the first year.
What did these successful start-ups all have in common? Before the first check was written, they hired a bookkeeper. They all went into business to make money, so that’s what they took care of right from the start – by establishing an Accounting Department (even if it’s only one person, and that person is them).
Poor financial management is one of the primary reasons businesses fail. It can seem a daunting task to maintain the many day-to-day transactions of a company, regardless of its size or the nature of its enterprise. Some companies are what I call “transaction heavy” – for example a retail store might have dozens or even hundreds of transactions every day – but a consultant might only have a few transactions a month; I call these “transaction light.” Regardless of the number of transactions, if you don’t keep up with them from the get-go, you’ll never get a grasp on them. If you are in business, you must know how to handle money.
