Common Mistakes People Make When They’re Building A Business
Building a business from scratch is an exciting journey. Although an exhilarating venture, it is lined with several challenges and complexities that can cause an added amount of stress.
To avoid making financial errors that might cost you a large sum of money or your business, it’s best to enlist the services of an experienced accounting and tax consultants to assist you in drawing out a financial plan. They can help you analyze financial information so you can make informed business decisions.
To ensure the smooth functioning of the financial aspect of your business and help you steer clear of avoidable mistakes, Birch Accounting & Tax Services Ltd. has compiled a list of the most common mistakes that clients make when they’re building a business.
1. Failure to build a financial plan
Whether starting a new business or growing an established business, a financial plan is imperative to your success. A simple review of common reporting practices of any large successful business will identify that at the heart of the decision-making process is timely financial reporting. By contrast, small businesses are often founded by individuals with strong operational expertise but limited financial experience, and that’s why the area of focus as they grow their business is usually operational excellence. If there is any financial focus, it’s usually on top-line revenue, as this is the easiest financial gauge to measure.
Take these steps to build a strong financial plan.
a. Identify someone who has the expertise and time to help construct a financial plan. This should be someone with a blended background in accounting and operations.
b. Help this individual learn the intricate details of your operation. Even within similar industries, each organization is different, and that matters. A one size fits all approach often leads to frustration.
c. Provide this individual with the goals and vision of your business to ensure that the financial plan will be constructed in such a way as to align with those goals.
2. Failure to build a strategy
After getting to know what your financial plan is, it’s crucial to then build a strategy to achieve that plan. Business builders often feel overwhelmed with all of the decisions they need to make on a daily (or hourly) basis. As a result, rather than constructing a strategy to build their business, they run from decision to decision simply putting out fires.
Business builders should care about building a strategy because it helps align their time, energy, and resources with the goals they have for their business. This leads to three very important outcomes.
a. It saves valuable time for the business builder as it provides an opportunity to challenge how they spend their time ensuring that they are investing it in the activities that will help achieve the outcomes they desire.
b. It provides a measurement tool that simplifies the decision-making process allowing for faster and more confident decision-making
c. It fast-tracks the growth process helping you to achieve your business goals faster than otherwise.
Take these steps to build your business strategy.
a. Ensure that you have at least given serious consideration to your financial plan.
b. Consult your team (i.e., accountant/bookkeeper, business coach/advisory board, any employees in management roles).
c. Consider each crucial area of the business (sales, business development, operations, growth strategies, finance, strategic relationships, staffing) and brainstorm what is required in order to achieve excellence in each area
d. Decide from the brainstorming session what strategies will best support your goals for the business.
e. Document the decisions.
3. Failure to identify key performance indicators
Key Performance Indicators come from the construction of your strategy to achieve your business goals. KPI’s provide simple measurement tools to help measure the performance of the day to day business activities that are most crucial to the success of a business.
Business builders should care about identifying KPI’s as this is a simple way to build discipline into the business management process while at the same time providing a great tool to track performance over time.
Take these steps to identify the KPI’s for your business.
a. Ensure that you have first completed a Financial Plan and built a Strategy to achieve that plan.
b. Identify the top five to ten most impactful indicators of success. For example, within a service business, some will be financial (i.e., Sales growth vs. prior year, Gross Margin percentage), some will be based on large expenses such as payroll (i.e., billable hours, utilization percentage), some will be based on sales performance (i.e., average hourly rate). Be careful not to have too many, so it’s not overwhelming.
c. Include your team in the process (i.e., accountant/bookkeeper, business coach/advisory board, any employees in management roles).
d. Advise your staff about the metrics that have been created.
e. Determine in advance measurement schedule (should be monthly and should have a date determined. For instance, the second Tuesday of each month).
4. Failure to consistently monitor results
Just like going to the gym is easy to start and hard to maintain, so too is it easy to build a business strategy and define key metrics and then fail to monitor those results. This step comes down to building discipline.
Business builders make this mistake because discipline is hard. However, to ensure that we actually achieve the results that we are striving for, we need to ensure that we have a system to help us overcome this challenge of discipline.
Take these steps to build the discipline to monitor your results.
a. Unless you are fanatical about maintaining your KPI’s, monitoring the results on a monthly basis, identifying trends, and then drilling into any anomalies to identify the reasons for those trends, you should appoint another person within your team to take the lead. This could be your accountant/bookkeeper, a business coach/advisory board, or a very trusted manager.
b. Together with this appointed person, establish clear and consistent timelines for measuring the results and reporting on the results.
c. Together with this appointed person, establish clear goals for each target.
d. Don’t give up if it gets hard, or the results don’t look right, in fact, the reason that we need to monitor these results is so that when things don’t look good we can identify the problem early on and devise a strategy to solve the problem before it becomes too large or costly.
5. Failure to challenge their assumptions
As business builders, many fail to challenge their assumptions. The risk that we face when we fail to challenge our assumptions is that things change, and those changes, if not identified early enough, can lead to significant challenges. Alternatively, if we identify trends or changes early on, we can make decisions in a timely manner than can prevent those significant challenges.
Take these steps to ensure that you are challenging your assumptions.
a. Ensure that you are closely and diligently monitoring your monthly results, as noted above.
b. Ensure that you have surrounded yourself with a trusted team who will not shy away from challenging the status quo, or commonly held assumptions from you or others.
6. Failure to build a strong team
Business builders typically know that they need a team of professionals to help them build a strong business, but oftentimes they do not do enough work to qualify the professionals that they hire (either staff or contracted professionals). Sometimes this is because they are counting on themselves to be the final say on things, sometimes it’s because they don’t know how to find the right professionals, or sometimes they are simply too trusting.
Take these steps to ensure that you build a strong team.
a. Identify in advance the qualities and skill sets that you are looking for in the team members you hire, you do not need just an accountant or bookkeeper, but you need a professional who understands the uniqueness of your business, what your goals and strategies are, has a commitment to those strategies, has the resources to provide that service without interruption, has your trust and respect and yet is unwavering in their commitment to hold you accountable when necessary, etc. Not every accountant/bookkeeper will fit your qualifications.
b. Interview a number of professionals for each role, and don’t be afraid to ask the challenging questions. They are there to support you, not the other way around.
c. Understand that the best service is not the cheapest (by hourly rate), though usually, the cheapest service does end up being the most costly when you have to resolve problems caused by poor advice.
d. Seek long term relationships of your strategic team, these people should get to know you as a person as well as your business, and only then can they begin to provide truly great service.
If you’re looking to avoid these and other mistakes while building a business, reach out to the experts at Birch Accounting & Tax Services Ltd. With over a decade of experience, we provide accounting and tax services, including bookkeeping, personal taxes, corporate taxes, business plan, etc., to clients across Leduc, Calmar, Nisku, Devon, Millet, Beaumont, Wetaskiwin, Camrose, and Edmonton, Alberta. For a complete list of our services, please click here. If you have any questions regarding financial planning and building a business, we’d love to hear from you. Please get in touch with us by clicking here.