10 Mistakes To Avoid In A Small Business

I want to focus on some pitfalls to avoid in your journey to running a successful business. Undoubtedly, I’ve made plenty of mistakes in my continuing efforts to run a successful small business. If you play it safe and do not take risks you will never know what its like to succeed in anything other than playing it safe.

1. Charging Your Customer Until A Product Ships or Services Are Rendered – Do not run a customer’s credit card or receive monies for a product that you are not ready to ship that day or a service you have finished at that moment.

For example, in my Tearstone.com business, since the vehicles we specialize in are not popular, most items are special order items that sometimes take 2-3 weeks to actually get in from our suppliers to ship out to the customer. As fickle and impatient as customers tend to be, they will end up canceling the order early for a variety of reasons. Up front, we do run an authorize transaction to insure that their credit card is good for the payment when they initially place their order, but do not actually charge it until it ships to them.

If you were to run a service and take the money up front, I guarantee that if push comes to shove you would end up slacking a bit since you already have reaped the reward for an effort you have not completed yet. This is not a good way of doing business for you or a customer. Even auto body shops invest their own money into a car to pay their employees and materials before they collect a dime from an insurance company or client before the car is returned. If nothing else, this puts you on a time line with the client and a heightened sense of concern of customer satisfaction before the hand over their hard earned dollars for your endeavors.

2. Handing Over Money To Your Vendors Before Products Are Shipped – This sort of goes along with the last mistake and that keep in mind that you are a customer to your suppliers. If you have any supplier that asks you for money up front then save yourself the grief and take your business elsewhere.

Initially when Tearstone Performance started, I had started with the primary focus of selling aftermarket turbo kits for cars that did not come with them from the factory. These kits cost anywhere from $3,500-$5,000 a pop. Admittedly, I made this very stupid mistake of giving money to a crooked supplier to build these kits for me prior to ever receiving any product. Essentially to make a long story short, they literally financed their meals on all the money that we were giving them and depended on us to drum up more sales to supply them with more money they needed to finish off old orders that were not fulfilled. They even ran this way with customers that would stop by their shop and drop off their cars as well. They thrived on the “Rob Peter to Pay Paul” concept and continued on until I finally put a grinding halt on the sales of turbo kits.

We were in a position where we had 12 orders of turbo kits in from customers to these crooks and all the money was in their hands. We lost an estimated total of around $25,000k worth of orders we scraped up to refund in some way shape or fashion.

As a business owner, this really did kill my spirit of being personable with customers because you really see the true colors of people when you are stuck in a predicament and they don’t care about you anywhere near as much as you thought they did when the transaction started. It was just a stark reminder that although you should endeavor to build relationships with your customers but don’t get attached. In the end, you are still just a random business in your market out to make a buck.

3. Spending More Than You Can Afford – To most this seems like a pretty simple concept. Don’t spend more money than you are bringing in. Furthermore, do not even think about financing your business on a credit card as you are setting yourself up for failure. It’s extremely important that you only budget for those things you absolutely need to keep your business moving forward and save or invest the rest.

When we first started Tearstone Performance, we only invested enough money to get the LLC paperwork submitted and a bank account open. We found a supplier that did not require a buy-in and started selling product through our website which I built with my own time and free software on a friend’s web server. We continually repeat a cycle of making a sale, paying for the product through our supplier, delivering that product and working with the difference. Remember, that the difference between what the product sold for on your website and what you bought it from your supplier for is just a net amount. You still have to put money aside for bank fees and other expenses that you incur in your business every month.

I find this particular business model extremely successful and very low risk. I’m not spending any money I don’t have and won’t be put into a position where I owe anyone anything as long as I stick this this plan. Ideally, if you are working a full time job during the day, and running a website on the side this is probably the best way to do it.

4. Being Too Stuffy – Even though you are running a business, you are still a human being with real problems and a real life. In your small business, you will start off with people that want to deal with small businesses specifically mainly for the human interaction. They want to build a relationship with you and not some faceless conglomerate. Being a small business, use this to your advantage. Think about anytime you get a long winded email with excessive amounts of HTML formatting pressuring you to buy something? I delete it with out a second thought.

When I first started Tearstone Performance, I was overwhelmed with the amount of phone calls and Instant Messages I would get from people that just wanted someone to talk to and chat. I felt as a business owner I shouldn’t have to be bogged down with all of this personal interaction as it just eats my day away. So I started being more stern about the conversations I was having and ending them abruptly and I quickly recognized that I was starting to kill off one of my biggest value adds. People liked the fact that they could build a relationship with me without having any sort of barrier there and preferred to continue to do business with me.

I’ve learned if you come off like you are too important to talk to everyone, they’ll just go find another small business to buddy up with and go spread the good word about them instead of you. Eventually your business will just turn back into another random website floating out there on the internet. Your customers are your most valuable marketing and sales tool, treat them well.

Don’t forget the 80/20 philosophy. 80% of your business comes from 20% of your client base. It costs twice as much for new customers as it does to keep your existing customers.

5. Failure to Research – I want to assume that everyone would determine that there was enough demand to warrant opening up a business or product line based on what they want to sell but this can be a costly mistake. It is a mistake that I find a lot of new business owners jump into too quickly.

Many businesses fail because there is not enough demand or market for the products and services they want to provide. Let’s say that you want to develop an after market widget for an existing product. Your fabricator states that you must build 100 widgets at a time. If your demand only consists of a handful of people saying they want this widget made, chances are that’s not a smart business to get into. No matter how much you perceive a need is out there, you may end up fueling the dream of a few paying customers then paying out the nose for widgets attached to many hopeful sales. I have a shelf full of inventory we are still working on trying to move because of this very reason right here. It’s good to make investments, but be smart on how many items you want to buy to product at a time. If nothing else, you may have to go to another fabricator, get quoted for a higher price and see if those customers are okay with that. Don’t get into a predicament where you cut your profits too slim or it may end up costing you more than it is worth.

6. Selecting the Wrong Tools For the Job – For an online business, most of those tools come in the form of software. I’ve been extremely lucky in finding most of the tools to accommodate our business ventures have come in the way of GNU or GPL or commonly known as free ware. This site you are viewing right now, was built with free software, my Tearstone.com site was built with free software including the shopping cart and SEO engine. This is one way I was able to drastically cut expenses and time invested in building a website.

Sometimes it’s better to buy software, especially for the books. In the spirit of saving money, we started off by using Access to do our books. This turned into a nightmare as our database needed to be started from scratch and it was never actually completed properly. We were not in the software development business, so needless to say we had to move on. There was a sale on Microsoft Small Business Accounting, which was definitely a step up from using Access. But due to how unbelievably complicated it was to use, and that no accountant liked to deal with it we discarded that tool as well. Eventually we finally had enough money to invest in Intuit QuickBooks. We bought two licenses so we could share a database and open it up from two locations. This made all the difference in the world and your options are open a lot wider with the amount of accounts that would rather receive your book data in this format.

7. Taking On The Wrong Customers
– This world is filled with billions of people from all walks of life and various levels of maturity. Just because someone is interested in doing business with you does not mean that you should accept. In the event that you are moving product, there are customers that you don’t necessarily ever have to sell to anymore either if you know that they are going to be a problem.

Friends and family probably make the worst customers possible. They usually want everything for nothing, potentially lack the maturity to draw the professional line of business and friendship or simply will just waste your time. I tend to run into this mistake from time to time because normally when a customer would not bother with a request like returning an item they didn’t need, usually friends and family have no problems with you taking it back even when you have cut them a deal. Where does that leave you? Holding the bag on potentially a special order item that you now have to spend the extra effort to market it out to another customer.

Also, in my experience we sell products to a lot of pubescent teens that sometimes get a hold of Mommy & Daddy’s credit card. This is a good time to make sure you have your terms and conditions handy. At least once a month, we run into an issue where some kid bought something, then their parents find out and attempt to halt the transaction. This comes in the form of refusing shipment or doing a charge back. Luckily, charge backs can be fought when you have proof that you shipped the item. Usually that leaves the problem back on them. Also you may want to include a term about returned stock that is returned that you won’t give them a refund for. You can turn around and resell this stock because after all you are not there to warehouse their mistakes.

Even though you want to try to build good reputations with people, sometimes they will use and abuse you. For instance, we had a gentleman that used to spend time with us on the phone getting recommendations from us on products to buy. Then he would turn around and buy it from a competitor that was selling it cheaper. Then, he had the audacity to come back to us for assistance on the installation or usage of the product. I have absolutely no tolerance for customers like this and we just politely told him to check with the vendor he bought it from for assistance. From that point on, we avoided picking up his calls when coming through on the caller ID.

Some customers are just not worth your time, let the competition be wrapped up in that mess and continue to just take care of the customers that take care of you.

8. Trusting Your Suppliers – Even though you may think that guys that have risen to a higher level of success or had enough capital to become a wholesaler has their stuff together, that’s not always the case. You have to stay on top of your suppliers since ultimately they represent you in your quality of service.

We’ve learned over the years that not all suppliers are on top of the game as we would like them to be. We have a few suppliers that even though sometimes they are really great or very efficient they have screwed up on some orders in the past. We have a few suppliers that drop ship products directly from their warehouse to our customers. We always double check their work when we get a receipt for our Purchase Orders and tracking numbers for when product is shipped. It’s not unusual that products get sent to the wrong address or you get charged the wrong amount for your purchases. It’s very important to stay on top of this! If you run a small business that specializes in drop shipping this must stay on the top of your priority list!

This is not to say all suppliers are always bad, but a supplier that has not been in business over 10 years, expect to run into some issues.

9. Forget To Pay Your Taxes – This is pretty self explanatory. If you live in a country where a percentage of your sales must go back to your government, then this is something you definitely want to stay on top of.

We are lucky to have an automated system here in Florida that alerts us every time our taxes are due. In most places your taxes are due every quarter, but if your sales volume is high enough your taxes are due every month. Also if you hire an accountant, they will insure your taxes are paid as well.

The United States IRS (Internal Revenue Service) has changed their policies of a kinder, gentler IRS and won’t think twice to audit your books. Keep everything up to date and stay legit.

Do not turn the business account into your personal spending account! To get paid out of your business, you are supposed to cut yourself a check from out of the business while contributing a portion of it to Social Security and figuring out how much goes to your income taxes at the end of the year. Keep your business finances and your personal finances separate at all costs.

10. In It To Only Make Money – Your business should not only be something you truely enjoy doing, but it needs to have a purpose. If that purpose is to just make money, then chances are you are not going to do anything worth while.

Originally, when we started Tearstone Performance, our purpose was to sell Turbo kits. To be honest, since it was a side gig, I was not that concerned with making too much money on the deal. At that time, I was fine with making a $100 off of each kit, whereas in hind sight I should have been making $1,000-$1,500 a kit! The company at that time did really well, because I was truly doing it to help other car enthusiasts enjoy the success I had made with my own vehicle endeavors.

I still love selling car parts, but complications with suppliers and a niche market drying up is forcing me to change the way I do business. As with most facets of life, it is a good trait to have to embrace change and growth. Even if I closed my parts business tomorrow, I would not trade the experience I’ve had running a business for anything in the world. As a result, I have the knowledge, experience and confidence to start up a business selling just about anything and be successful.

When starting a business, take what you are passionate about and run with it. That’s what keeps you motivated through the years. Also consider that most likely you are one person that has to take on a million tasks for the company to be successful. You have to be motivated enough to learn about all aspects of running a company to be a smart and educated business person. Rather you are putting in a 40 hour full time job with another 40-60 hours of side business in every week or putting in 80 hours devoted to your business you absolutely have to love what you are doing to truly add value to whatever market you decide to excel in.

Running your own business takes a great deal of responsibility and if played correctly will yield the same in rewards. There is nothing like the satisfaction of guiding your own destiny instead of having an employer cut you one day as a result of insuring their own bottom line. Take control of your destiny and pursue your dreams.

4 Replies to “10 Mistakes To Avoid In A Small Business”

  1. great tips ive started my own with 2 friends from HS and although im not starting a car business, these will still come in handy i’m sure

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