Starting a new business is a major step in anyone’s life. Especially if you’ve never done it before. The “fear factor” is enormous. You’ve bet all your saving, mortgaged your home, borrowed from relatives with nothing but a promise to yourself that it will all work and everyone will go home happy. Here are some mistakes I’ve learned over the past 40 years from business owners across the nation.

Mistake One: Hiring the Wrong People

Hiring friends or relatives rarely works out well. It only works well if there is a clear employer/employee relationship from day one. If not, problems will probably arise. My rule of thumb here — “Don’t hire them if you’re not prepared to fire them.”

Mistake Two: Buying Used to Save Money

Orders are backing up and it would be great to have another delivery vehicle. A high mileage truck might look like a low-cost problem solver initially but it may end up spending more time in the shop than on the road. Make choices with your brain not your wallet.

Mistake Three: Pricing Your Products or Services Too Low

I have a product that I make a profit of $15 on when sold. If I sell 100 of them I make a $1,500 profit. If I raise the profit of that product $10 I can lose 40% of my customers and make the same $1,500. Only 7% of the population wakes up every morning as true “price shoppers.” Chances are you will only lose about 3% of your customers, if that. So 97 customers, at a profit of $25, will produce a profit of $2,425
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Mistake Four: Listening to Unqualified Advice

If I have learned anything over the years it’s this. Cheap lawyers and cheap accountants are expensive. Both of these professionals should save you more than they cost in good advice. Professionals warrant the fees they ask. Just as your products or service are worth the asking prices. Good accountants are worth their weight in gold. Put a good one to work for your business.

Mistake Five: Borrowing Money At the Wrong Time for the Wrong Reasons

There are times in every economy where borrowing money is smart and makes sense. But there are other times when it can put an unnecessary debt burden on the business. Obviously, borrowed money has to produce more than it costs. Always, look at borrowing as investing. There has to be a very real expectation of “return on investment” for borrowing to take place in a shaky economy.

Mistake Six: Advertising in the Wrong Places to the Wrong People

No matter what its size, every business has an “ideal” customer. The mistake is when the business owner thinks the customer is like him or her. Just because you like talk, or rock or jazz radio does not mean your customers like those same things.

Try watching TV shows or listening to radio stations you don’t normally listen to or watch and see who’s advertising there. Is your competition there? People rarely advertise if it does not produce results. Make sure you are reaching the right people with the right message at the right time. It’s not always easy but try tracking your ads as best you can.

My rule here is, “Never advertise anywhere unless there is at least a 75% expectation the ad will produce more in revenue than it costs.” “Advertising must ALWAYS be an investment; it can never be an expense.”

Some Final Thoughts

These are certainly not the only speed bumps on the way to success that I’ve found when talking to small business owners. The thing to keep in mind is — think it through. Don’t be afraid to take risks. In most cases, risks are what got the business to the “break-even level.” Trust your business plan and make sure you revise and revisit it often during the year. Make sure financials match up with current economic conditions. Hire smart but don’t be afraid to cut your losses when needed. Businesses with good planning usually have a much higher success rate than those that just react on a daily basis. Take control.

Check out Tom’s Weekly Radio show at http://kmmsam.com every Saturday from Noon to 2 PM Mountain Time – Follow Tom on Facebook at facebook.com/smalltownmarketing and on Twitter @smalltownmarket