As I write this in early 2019, I’m thinking back on more than 20 years of hearing business pitches as a judge of business plan competitions and as an angel investor.

Next month I’ll have another round of it, judging both the University of Oregon New Venture Competition and the Rice Business Plan Competition. Once again I’ll be reading business plans first, then sitting for the pitch and asking my questions. 

The image here is of the Rice Business Plan Competition, entrepreneurs pitching at the finals. That’s me in the front row, second from the aisle, on the left. [Editor’s note: Permission to use requested via email 2/28/19].

1. Your pitch was boring

Tell me a story that resonates. Tell me about people who care, ideas, how you started, why you started, and how you’re going to change the world. And just so you understand, market need and solutions aren’t boring, especially when you show them in stories rather than alleged facts.

And please give me financial projections with assumptions laid out clearly—that’s not boring at all. Your business is exciting. Your prospects are exciting. Don’t dry it all up. Talk about it. Add interesting pictures to back your stories up. Put faces on the screen when you’re talking about people.

Read Resonate, or Presentation Zen, or just at least the blog post Really Bad Powerpoint.

2. You shared ridiculously optimistic projections

I’m amazed at how many pitches I’ve sat through that project completely unrealistic profitability. Please, get a clue.

Real businesses make profits like 7 percent, 9 percent, occasionally even low double-digit profits (stated as a percentage of sales). Rarely, some new innovative businesses will get to 20 percent profits to sales. And yet I’ve seen many pitches projecting 30 percent, 40 percent, even some with 50 percent and 60 percent profits.

Wildly optimistic profits kill credibility. They don’t convince me that you’re going to be that profitable. They tell me you don’t know your business that well.

So get benchmarks. Find out what other businesses like yours, on average, are making in profits. Benchmarks for different industries are easy to find online for a small fee. They are even built into LivePlan.

3. Your co-presenters were bored

When more than one person presents, the others have to act interested. Sure, you’ve heard the pitch many, many times, but if it bores you then that makes me less interested.

New businesses are fascinating. The new ideas, creating new markets, really smart people, that’s all fascinating. So step up your pitch. 

4. Your slides were full of words

You should say the words, talk to me—don’t have us all reading the pitch deck slides together with you.

That goes back to point 1 above, boring. You should tell a story and show pictures—see point 1.

5. You read your slides full of words out loud

Never turn your face to your slides and read us the bullet points. That makes all of us listeners want to throw something at you. Point 1 again.

6. You used buzzwords and meaningless adjectives

Why is it that every single plan is “disruptive?” Can they all be? Don’t use the same words that everybody else uses.

I don’t mind the technical jargon as much because people know they have to explain them. I mind all these trendy buzzwords that everybody applies. Not just disruptive, but also game changing, market-leading, and viral, and pivot. They remind me of the old days when every software package claimed to be user-friendly (and mine was the only one that really was).

Tell me the story of what you have, where you are, how you got there, and who’s it for—let me decide the adjectives.

7. You focused on internal rates of return and net present value

I’m glad they taught you internal rates of return and net present value in business school. But both of those calculations are based on five years (or so) of future cash flows. They are assumptions cascading on assumptions, presented as if they were statistical truth.

Show me your projections, yes, and, even better, show me the assumptions behind them. But don’t quote me a damned IRR. I’ll judge your projections for realism and credibility, but that’s sales, costs, expenses, cash flow, and other basic numbers. Not discounted cash flow.

8. You tried to dazzle with big market “facts”

I hate hearing about a $43 billion market, and even more so when you present a sales forecast validated by getting some percentage of that market. I’m not alone in this. Most investors hate the forecasts that start with a huge number and take some small percentage of that number as potential sales.

Instead of that, validate sales by bottoms-up assumptions. One really good example is a sales forecast that sets an assumed number of sales per month per store and an increasing number of stores. Or the web subscription forecast that tracks web visits, conversions, conversion rate, pay-per-click results, email opens, and so forth. Or the enterprise sales forecast based on sales reps, pitches closes, and pipeline.

Be sure you understand the difference between the three popular concepts on market and market share: TAM, SAM, and SOM.

9. Your bluster tripped you up

Know what you don’t know. Don’t bluff investors.

Some entrepreneurs take a pitch presentation as if it were some kind of verbal final exam, in which they have to know all the answers. What they don’t know, they guess, pretending they do know. That’s disastrous. Odds are that in a group of investors, somebody will recognize this kind of bluff. That kills credibility.

When you don’t know, “I don’t know” is the best answer. And, unfortunately, there’s no way to look good when you don’t know the essentials related to your own business. Bluffing makes it worse.

10. You avoided fault or responsibility

“Yeah, these numbers are probably wrong. Our financial person did them but we’re going to change financial persons.” What? Yes, I did hear that in a presentation once.

Investors are looking for businesses they want to join and support. Most investors assume that people who deflect and blame others are not likely to be working well with a team. I suggest you read this personal account, a true story: Did You Get Screwed in Business?

Did you know this article is part of our Bplans Pitch Guide? Everything you need to know about creating your pitch, all in one place.

Hear more pitching tips with Peter and Jonathan on the tenth episode of The Bcast, the Bplans official podcast:

Click here to subscribe to The Bcast on iTunes »

While it’s generally good to be forward thinking and avoid dwelling on the past, most of us have made a few key, crucial mistakes that we’d reverse if we could.

The same is true for small business owners. In every startup story, there is bound to be a wrong turn here or there. With hindsight being 20/20, it’s easy for entrepreneurs to look back on their mistakes and see exactly where they went wrong.

This isn’t meant to warn you against making your own mistakes—you’re sure to make them. However, with this in mind, it’s a smart move to look at what successful entrepreneurs wish they’d thought of before starting their businesses, what they realized too late, and which wrong moves they’d avoid now that they know better.

Here are eight lessons that the entrepreneurs from the Young Entrepreneur Council wished they’d known before they started their businesses.

You can’t know everything, and you’re bound to make some mistakes—just perhaps not these ones.

1. Your environment affects your success

It can be tempting to rush through the early stages of the startup process; you might be inclined to hire the first person who comes along, or choose the first storefront location you find that checks most of your boxes.

However, think carefully about whether or not you are making choices that come together to create the type of environment you want for your new business in the long run. “Surrounding yourself with inspiring, supportive people and environment helps boost your productivity and creativity,” says Artur Kiulian of Colab. “Not many people follow this rule, and sometimes end up with a counterproductive environment, hurting every single aspect of their business.”

This might mean holding out until you’re sure you’ve found the right business partner, office space, or logo design—and that’s fine. Choosing wisely will benefit your business in the long run.

2. Your personal development goals go hand-in-hand with your business goals

You might be focusing on building your business and improving your offering, but are you devoting enough time to self-improvement as well?

Joe Apfelbaum of Ajax Union advocates that entrepreneurs look to themselves first, and make sure they are on track to meet their own personal development goals, in addition to business goals. “My business is a reflection of me,” says Apfelbaum.

When he first started his business, he didn’t initially make the connection between the two. “I wish I knew how important personal development was to the growth of the business,” he says. “When I got in control of my bad eating habits, my waist shrunk—and my bottom line increased.” His advice? “Hire a coach, hire a trainer, and read and write every day.”

3. It always takes longer than you think

Starting a business isn’t typically a weekend project, but rather something you’re in for the long haul—and it’s important that you take your first steps with this in mind.

“I have founded multiple companies and mentored multiple founders; one common thread is that it always take longer than you think to grow a business,” says Karan Chaudhry of Comnplus.

Chaudhry emphasizes this to highlight the investment would-be entrepreneurs must have in their idea, as it will likely take much longer than anticipated for a business to achieve success.

“It is an important realization, as one needs to be passionate and resilient to weather the storm and keep persisting when things are rough,” he says. “It’s important to do it for the right reasons and not with a goal to get rich or famous.”

4. Just because you build it, doesn’t mean they’ll come

“After a year and a half of hard work raising my startup’s first million, I spent it all without signing one customer,” says G. Krista Morgan of P2Binvestor.

The fatal flaw in Morgan’s plan? A lack of focus on actually talking to customers and finding their target audience. “We thought our plan was simple enough: We were going to work hard and sell stuff,” says Morgan. “The lesson? Spend as much time finding your customers as you do finding your investors.”

5. If possible, build a recurring revenue model

The popularity of subscription-based services is due in large part to the fact that they use a recurring revenue model. The appeal is obvious—who wouldn’t want to set up their business so that their customers bought and paid for their product or service regularly, time and time again?

Peter Boyd of PaperStreet Web Design says he wishes he knew about recurring revenue before he started his business. “We lucked into a recurring model after a few years and that is when the business started to really expand,” he says. “The key to growth is getting a consistent stream of recurring revenue that can be relied on, even if one-time projects slow.”

Boyd also highlights the security that establishing a recurring revenue model can provide. “It allows you to budget for the future and take more risks,” he says.

Think your business won’t lend itself to a recurring revenue model? Think again—it isn’t just for subscription boxes.

6. A clash in values makes for a bad business partnership

If you’re just starting out, you might be desperate for someone to share both in the hardships and the excitement that comes with getting your business off the ground. However, echoing suggestion number one, Anthony Davani of Kreoo/The Davani Group warns against choosing your business partners rashly and urges new entrepreneurs to look closely at their own personal values before settling on a new partner.

“Having a partner that is not aligned with your values can ruin your business,” he says. “It’s OK to have different beliefs and healthy to argue over the direction, but if you do not fundamentally share the same values, then you are set up for a disaster.”

Davani argues that a shared value set should be the deciding factor when choosing a business partner. “Values are the core foundation of who we are as individuals, which will transcend over how we run our business,” he says.

7. You’re never going to “get it”

“When I started my business, I had this unrealistic idea that after a year or so, everything would click into place and running my company would become second nature to me,” says Alyssa Conrardy of Prosper Strategies. “That couldn’t be further from the truth.”

Conrardy believes that framing your journey into entrepreneurship like this is helpful, as it prepares you for potential unforeseen hardships ahead. It also allows you to think of your experience as a small business owner as an ongoing adventure, rather than a trajectory that has a fixed end point and finite set of lessons.

“I wish I knew that building a business is a marathon, not a sprint, and that figuring out how to thrive an entrepreneur is a lifelong journey, not something you suddenly ‘get,’” she says.

8. The starting process will be over before you know it—so enjoy the ride

So, you know you’re in for a marathon adventure. With that in mind, make an effort to have fun and enjoy the view, rather than keeping your head down and pushing relentlessly forward.

“When my co-founders and I started our company, we were so busy trying to make it work that we failed to enjoy the process of actually building a company,” says Alfredo Atanacio of Uassist.ME. “I wish I knew that one of the most beautiful parts of entrepreneurship is precisely when you start the business.”

Which lesson do you feel is the most valuable? Have you learned another important lesson while starting your business?

Share this article on Facebook or Twitter and let me know, or reach out to me @BrianaMorgaine on Twitter!

I sat down for lunch with a friend, a Sand Hill Drive venture capitalist. When I asked the standard “How are you,” he answered:

“If I see another hockey stick forecast this week, I’m going to throw something at somebody.”

That was so long ago that I had to ask him to explain the hockey stick metaphor. He answered:

“That means that sales are going along flat and boring, with nothing happening—but things are going to shoot up as soon as I get your money.”

Sales forecasts should rest on assumptions

The underlying problem isn’t the contrast between an unimpressive recent past and allegedly spectacular growth in the near future. Growth is good. Venture capital likes startups looking to grow.

No, the problem is unrealistically optimistic forecasts with no real basis. A growth forecast works for investors when it’s built on realistic assumptions, laid out transparently.

For example, couple an attractive conversion rate for web traffic with a believable marketing program to vastly increase the incoming traffic, and you have a more believable forecast. Or show sales per store data for a physical product along with documentation of new contracts with distributors to vastly increase the number of stores. Build a forecast from the ground-level assumptions up to the accumulated total.

How to avoid unrealistic projections

One technique to avoid is forecasting sales as a small but significant percentage of a very large market. We see that reasoning a lot in business plans we review for our angel investment group.

The problem with it is that it just never works. Real startups don’t launch and collect half a percent of a $50 billion market. If you can’t break it into fundamentals like average deal size, sales touches, conversation rates, sales per store, subscriptions per trial, and so forth, it doesn’t hold up.

Remember, sales forecasts are about people predicting the future. In practice, whether your plan is for investment, a bank, or just running your own business, the use of the sales forecast is to break it into assumptions, track actual results over time, and regularly review the plan versus actual results and manage the underlying assumptions with management programs.

Get realistic estimates of profits and margins

Sadly, a huge percentage of business plans we see for angel investment and business plan contests vastly overestimate profits and margins.

You can find industry-by-industry data on average real-world profits as a percent of sales. That data is included in LivePlan, and is available from multiple sources. Most industries average somewhere between two percent and 10 percent net profits as percent of sales.

In business plans, however, we often seen plans projecting 20 percent, 30 percent, and even higher profits as percent of sales. That strikes me as an obvious mistake, and one that is easily avoidable. Unless you have past data showing unusual profitability, projecting unrealistic profits doesn’t mean you’ll make those profits, but rather that you don’t understand the normal spending patterns for the industry you’re in.

For example, I’ve seen business plans projecting 40 percent profits on sales but spending only five percent of sales on marketing, in an industry that spends on average 50 percent of sales on marketing.

So too, with gross margin, sales less direct costs. Industry averages are readily available. When a business plan projects a gross margin way better than the existing business in that industry, that shows lack of understanding, not unusual management prowess.

Critical factor: Assumptions you can track as you go

Projections in business plans should be an exercise in identifying the drivers and triggers that make the business work. Set the forecast in the first plan and review results at least once a month, forever after. If you build it on assumptions you can track, then the review and revision process leads directly to management.

So in a business plan for investment purposes, or for showing a bank, building your forecasts on realistic assumptions is essential for credibility.

For all business plans, for all businesses, building realistic forecasts based on grounds-up assumptions makes for a planning process that will lead to better management.

So remember this: Anybody can type spectacular numbers into a spreadsheet. The real trick is to meet those numbers in real life.

It is daunting to start your own business—very daunting. There are a hundred and one things that can go wrong, and inevitably it will the thing that you’re least expecting.

To be honest, it doesn’t matter if you are starting up a business for the first time, or kicking off your latest venture; it doesn’t get less challenging. This is why advice from people who have gone through something similar can be both hugely helpful and crucially important.

I should know: I have started a few online ventures, the most recent of which has grown into a market-leading VPN site. But the road has not always been a smooth and straightforward one, and I am the first to admit that I have made a few mistakes along the way.

But if reading this helps you to avoid these five simple—yet costly—mistakes, then it will be a few minutes very well spent. So here is my run-down of the five biggest mistakes I made when starting my business (so you don’t have to make them too).

1. Micromanaging my team

When you start a new company, it is your baby, your focus, your everything, and this makes it very easy to get sucked in. This results in what is, in my view, one of the worst management techniques: micromanagement.

Of course, you want to know what is going on in your company and make sure everything is being done to your standards. But micromanagement is not the best way to do this, for a number of reasons.

• It demotivates your staff
• It makes projects take longer and run less smoothly
• It drains you physically and emotionally

It is vital that you hire staff that you trust and believe in, and then leave them to get on with their job. Of course make sure they are reporting to you and keeping you abreast of developments, but don’t be looking over their shoulder all the time, or they will leave.

Plus, it will be harder for you to focus on the more important tasks that you actually need to do yourself.

2. Failing to keep a bird’s eye view of all employee workflow

No, this is not directly contradicting my first mistake. Micromanagement is ineffective, but it doesn’t mean you shouldn’t be monitoring the workflow of your staff and the progress they are making.

You need to have oversight, but you don’t need to be delving into the detail. I would suggest trying to use tools like Trello to facilitate workflow for staff in and out of the office. A project management system like this can help keep things simple and allows you to oversee progress while still giving staff the freedom they need to thrive.

Management systems also enable you to employ different managerial styles with different staff. Some team members will need more input from you, while others will benefit from you taking a step back. These services let you do both.

They also help staff to effectively manage their own workload, and you should also see a drop in the number of deadlines missed or projects delivered incorrectly. Just make sure your team has the right training to use the software effectively, then leave them to it.

3. Wasting time on weekly meetings

I always used to think a weekly team meeting with staff members was essential. Direct engagement will make them feel important and part of the future of the business, I thought. Good for moral too, I thought.

Wrong! Weekly staff meetings quickly became a huge problem. They ate up far too much of my time, yet delivered precious little—and staff feedback also suggested most of them saw it as an unproductive half-hour.

Such formal meetings are completely unnecessary these days and I have scrapped them entirely. Open-plan offices mean I am engaging with all of my staff each day, and tools like iDoneThis allow users to take control of their own accountability and let me have input when needed.

For remote staff or those based in other offices, we now use numerous web chat services which can allow you to speak face-to-face with staff individually or collectively, from wherever they are. We use Slack for everyday chats, and Zoom for our monthly company calls (first Monday of each month).

Dragging off-site staff into the office for such meetings is just not necessary, and axing these meetings has freed up my time and actually improved my communication with my team.

4. Not renting my own office sooner

Working in the tech sphere, I initially decided that office space was unnecessary and an outmoded concept. I hired remote workers and thought online communication was sufficient. I couldn’t have been more wrong. It quickly became clear that while I didn’t need all my staff sitting in the same room every day of the week, I did need a central hub that the team had access to if and when they needed it.

Often, remote staff would come into the city for meetings with suppliers and customers. Without an office of our own, they could never host these meetings, which often proved not only costly in terms of transportation but also sometimes seemed like we were being rude.

Frequently, they would also need a place where they could work for a couple of hours in between meetings. My expense claims from Starbucks were sizable.

The clincher for me was when a member of my team was having building work done at her house. She couldn’t work there and instead had to sit in the corner of a noisy local coffee shop. She told me that commuting into the office for a couple of weeks would have suited her better and made her much more productive.

Having even a small, occasionally-used physical office is good practice and one of the best investment I have made to date.

5. Not implementing a “12 week year”

The “12 week year” has been essential in making a success of my businesses. If you haven’t come across it before, take a look at this site.

Essentially, it means breaking the year down into quarters. By doing this, we have managed to instill a greater sense of urgency and motivation in our staff through shorter deadlines and working windows.

It is more efficient administratively as well. We no longer have old-fashioned “annual reviews,” but instead more regular staff review and a development agenda which is beneficial to both staff and the business.

Moving over to the “12 week year” has proved to be revolutionary and I wouldn’t hesitate to recommend it to pretty much every boss starting up a new business.

They say you learn from your mistakes, which of course is true, but my life would have been a good deal easier if I had been able to listen to someone else and learn from their mistakes, rather than making them myself.

That is the purpose of this article—to share my mistakes in the hope that you don’t have to repeat them. I’m not in any way guaranteeing that starting your business is going go smoothly and swimmingly as a result of reading this; I hope it does, but in all likelihood, you will make other mistakes that you, in turn, will have to learn from.

This article is part of our Nonprofit Business Startup Guide—a curated list of articles to help you plan, start, and grow your nonprofit business!

A lot of work goes into making a nonprofit run smoothly, and a lot can go wrong. If you want to keep yours afloat, here are five mistakes you need to avoid.

There’s something immensely admirable about running a nonprofit; it stems from a desire to change the world for the better, and a willingness to devote oneself entirely to a charitable cause.

Unfortunately, good intentions do not a stable organization make. Business sense, logistical skill, and leadership capabilities do.

“New nonprofits face a number of significant challenges if they are to survive, and more importantly, have significant impact,” writes Wolfgang Bielefeld of Nonprofit Quarterly. “[Issues] are likely to include lack of visibility to the environment, confusion about structure, overconfident leadership, and shallow systems.”

In order to surmount those challenges and thrive, nonprofits both new and old must ensure they don’t fall into one of these five common traps encountered in their industry.

5 mistakes to avoid with your nonprofit:

1. Under-investing in fundraising

Fundraising is a nonprofit’s lifeblood. You need to engage in it as much as humanly possible.

That means, of course, that you need to devote a fair percentage of the money you raise through fundraising toward more fundraising.

It might seem counterintuitive—greedy, even. But failure to do this can lead to the slow, agonizing death of your organization. As a matter of fact, it’s the most common reason nonprofits tend to fail, according to Joe Garecht of The Fundraising Authority.

“The biggest fundraising mistakes nonprofits make is underinvesting in their fundraising operations,” says Joe Garecht. “It happens year in, year out, at thousands of organizations, and it leads to the slow and painful death (or worse, the frustrating stagnation) of hundreds of charities each year.”

“For most organizations, if they are spending as much of their fundraising revenue as possible on providing programs and services, that is a good thing,” he continues. “But when you dig down deeper, the true root cause is that many nonprofits don’t place enough value in their fundraising efforts, and don’t see their development operations as an investment, instead loathing the fundraising expenses they are ‘forced’ to incur.”

In short, don’t look at fundraising as an unnecessary expenditure. Look at it as something that is integral to the growth and success of your organization—because it is.

2. Hiring the wrong people (and then failing to manage them)

Just as with traditional businesses, a nonprofit can very easily fail if it employs the wrong people.

Unfortunately, with charitable organizations, this is a far more common practice than in large enterprises. Mostly, this is because of the mentality that a dollar spent on business operations is a dollar wasted; it’s money that could have been spent on one’s cause.

“Nonprofit employers face a unique set of challenges,” writes Siobhan Kelley of The Nonprofit Times. “They are always trying to do more with less—fewer staff members, less support, less funding. A combination of these practices can result in poor employment practices, even when one thinks they are doing the ‘right thing.’”

According to Siobhan Kelley, these employment mistakes fall into the following categories:

• Poor hiring practices: You should never hire someone just to fill a position. You can’t afford not to be picky.
• Lack of record keeping: How do you know if an employee is problematic without disciplinary records? How do you keep track of promising staff without performance records, or vacation without employment records?
• Opting for salaries instead of hourly wages: In most states, nonprofit employees must be paid an hourly wage unless they meet a very specific set of criteria. This is required by law.
• Not firing problem staffers: Nonprofit employees aren’t actually all that different from staff at for-profit organizations. If they cause consistent problems and create a toxic workplace, you need to show them the door.

3. Failure to manage the legal side

In a perfect world, you’d be able to focus entirely on raising money for your cause.

You’d make a difference without having to consider your region’s regulatory environment. Unfortunately, we don’t live in a perfect world.

If you want to avoid landing in legal hot water, advises Charity Lawyer’s Ellis Carter, you need to make sure you have proper, up-to-date governing documents in place.

You need to be aware of the laws governing nonprofits, and you need to be ready to properly manage potential conflicts of interest.  Most importantly, you need to be willing to step up and make difficult decisions.

4. Lacking a qualified leader (or giving a leader too much power)

Again, we need to stress here that a nonprofit is essentially a kind of business.

This means that without effective leadership, it will inevitably fail. You need to ensure you have a qualified set of executives who are willing to run things—but more importantly, you need to make sure they’re competent, and never have too much power.

“For a nonprofit organization with paid staff, once board members demand keys to the organization’s offices and start making direct demands on staff that report to the chief executive, the board has crossed the line,” says Ellis Carter. “The board’s key duties are to provide oversight and strategic direction, not to meddle in the organization’s day-to-day affairs.”

5. Missing out on marketing

Last but certainly not least, your nonprofit does not exist in a vacuum. If it’s to succeed, you need to make people aware of its existence. You need to market it.

I’m talking about maintaining a well-designed website, making effective use of social media, and establishing a brand identity over the course of your operations. I’m talking about treating nonprofit marketing just like you’d treat for-profit marketing.

And as with every other item on this list, you cannot afford to go cheap.

“When it comes to building a nonprofit website that’s fully functional and engaging, the question should not be, ‘How much does it cost?’ The question should be, ‘What’s the return on the investment?’” says Jay Wilkinson of Firespring.

“Your website has incredible potential and opportunity to increase donations, decrease expenses and printing costs, and engage with your audience in a meaningful way that connects them even tighter with your organization.”

Closing thoughts:

If anything, running a successful nonprofit is even more challenging than running a traditional business.

There’s so much more that can go wrong, and so many more misconceptions management must navigate around.

But the reward that comes at the end of it all is arguably well worth it—the knowledge that you’ve managed to make a difference in the world, and that you’ve managed to make it a better place.

The decisions you make on day one of your business have a ripple effect that can impact your business for years to come.

How you structure your business in the beginning has a permanent impact on how efficiently your business will grow in the future. It is highly likely that in years four, five, and six, you’ll face issues that have their root causes in the decisions you made on day one.

So it is no wonder that when an entrepreneur starts their second or third business, they incorporate the lessons they learned from their first startup.

I’ve been fortunate over the past eight years to work with hundreds of entrepreneurs who have come to the point where they want to sell their business. That decision requires that they take a moment to reflect on their successes and their failures. During these times, the impact of those first decisions is evident.

While there are dozens of lessons I could take away from these entrepreneurs’ experiences, I want to highlight three common mistakes founders make in the early stages of a startup.

3 mistakes to avoid when starting your business:

Mistake #1: Putting off record keeping

There is no doubt that starting a new business is hard work. There are long hours, moments of self-doubt, and the mentally exhausting task of working in multiple roles within your new startup.

So it is no surprise that many founders put off implementing financial record keeping, monitoring, and budgeting.

But this is a mistake. Stanford University professors George Foster and Antonio Davilia studied 79 startups to measure the impact of early implementation of financial reporting systems. Here’s what they discovered:

They found firms that quickly institute formal mechanisms such as operation budgets, cash budgets, and financial monitoring systems (tools that measure profitability, customer acquisition costs, variance from actual budget, and so forth) had higher growth rates in terms of revenues and headcount. They also had greater and more rapid increases in valuation at successive rounds of venture capital funding.

The fact is, bookkeeping can be hard to learn. Most new entrepreneurs think of their funds as “money in and money out,” yet bookkeeping concepts involve such quirks as the double-entry system or cash basis, versus accrual basis accounting. These concepts visualize the financial ecosystem of your business in a more complex and far more complete manner.

This added complexity often pushes founders to resort to simplistic Excel spreadsheets or to rely on bank statements to get a sense of the business’s financial health. For those that do venture into accounting software such as QuickBooks or Freshbooks without understanding the concepts of accounting, the results can be confusing and inaccurate books. Garbage in produces garbage out.

So it is important to take the time early in your startup to keep clean, detailed financial records.

Clean financial records will help you:

• Make better decisions for your business.
  Successful startups make data-driven decisions rather than relying on instinct and “feel.” Your financial records are a key driver of relevant data.
• Get credit for your business.
  New startups need to be agile and flexible. Getting credit when you need it can be a very useful tool, but you’ll need clean financial records to get credit.
• Be compliant.
  An audit can wreck a new business. Keep your books to protect your business from being dragged down through a costly audit.

Smart entrepreneurs know when to outsource, so you may want to consider hiring a professional bookkeeper. But don’t hire the first bookkeeper you find. There are 1.7 million bookkeepers in the U.S. alone, and many of these bookkeepers are less than perfect. A bad bookkeeper can be worse than keeping no books at all.

So before you hire a bookkeeper, have a plan to interview at least five candidates. Research questions you should ask, and ask these following five questions (at minimum).

Before you hire a bookkeeper, start with these five questions:

• Have you ever managed books for a business like mine?
  Doing accounting for a manufacturing firm is significantly different than it would be for an attorney, restaurant, or eCommerce business. Be sure your bookkeeper is familiar with your industry.

• Can you explain the difference between…
  You want to have a bookkeeper that can help you understand your books. When you interview your bookkeeper, ask them to explain various accounting concepts and gauge how well they communicate complex concepts. For example, have them explain the principles of the balance sheet or the difference and usefulness between accrual basis and cash basis accounting.

• How will I be able to access my books?
  You should own your financial data. If your bookkeeper acts as the gatekeeper of your books, you’ll be forced to request access whenever you need a report. Make sure you can access your books at any time.

• How often will you update my books?
  There are few things more annoying than your bookkeeper asking you to produce a receipt or explain a transaction that happened nine months ago. Make sure your bookkeeper will visit your books frequently, so you always have current reports.

• Can you inspect my current books?
  When interviewing a bookkeeper, ask them to review—and criticize—your current books. This will give you great insight into their views and approach to keeping stellar records.

Mistake #2: Choosing a business partner for comfort

Elon Musk, who happens to know a few things about starting successful companies, gave this insight at a conference in New York:

“Creating a company is a very difficult thing. A friend of mine has a saying: ‘Starting a company is like eating glass and staring into the abyss.’ You have to do lots of things you don’t like.”

Starting a business can be incredibly scary, so many entrepreneurs turn to a business partner out of the idea that there is strength in numbers. It’s comforting to have someone just as crazy as you are, someone who will affirm that the risk you take is a calculated risk.

But taking on a partner for comfort is a really bad reason to add a business partner.

When determining whether to take a partner, consider the following:

• Your business needs to be twice as successful.
  Bringing your business to a point of success is difficult, and if you bring a partner on board, you’ll have to be twice as successful to make your time and effort worthwhile. While a business partner will help carry some of the workload, it takes more than hard work to be successful.

• Your vision will be shared.
  While it is often a good idea to have someone that you can test your ideas against, having a business partner is much more than having a sounding board for new ideas or your vision for your startup. Your business partner will be entitled to put their fingerprint on the business just as much as you.

• Partner disputes can lead to an early exit.
  I consult with founders who are ready to sell their startups and move on to new opportunities. Unfortunately, a significant percentage of businesses for sale are due to partner disputes. Many of these businesses are great opportunities that the owners would keep—if they could just get rid of their business partner.

• A partnership is like a marriage.
  If you enter into a partnership, get ready to spend a lot of time with the person you partner with. Entering a partnership is like entering a marriage: you make a commitment to another person to help them reach success. While this can be useful on days where you need reassurance, it can be draining if the partnership begins to fail.

Despite this, bringing on a partner is not always a bad idea, but be sure your reason for bringing on a partner is well-founded. With well-founded reasons for entering into a business partnership, you can grow your business significantly faster than going into business by yourself.

Good reasons to bring on a partner may include their network of contacts, their specialized skills, or their willingness to oversee an aspect of your business that you would rather not touch.

So before you bring on a business partner, ask yourself this: Am I doing this just because I want comfort? Does this person add value to the startup? Can I get this value through a hired employee or contractor? If they truly add value, then go for it. Otherwise, take a deep breath and learn to overcome your fear of failure.

Mistake #3: Falling in love with an idea

“Sometimes I ask people, ‘How do you choose to suffer?’

These people tilt their heads and look at me like I have twelve noses. But I ask because that tells me far more about you than your desires and fantasies.

Because, you have to choose something. You can’t have a pain-free life. It can’t all be roses and unicorns. And ultimately that’s the hard question that matters. Pleasure is an easy question. And pretty much all of us have similar answers.

The more interesting question is the pain. What is the pain that you want to sustain?”

– Mark Manson 

Before I was an entrepreneur, I was a political consultant. At the time, I was enamored by the excitement of politics and campaign strategy, so it was a bit sobering when I spent a summer on a campaign for a state held office. The substance of my candidate’s strategy was to knock on doors from 9 a.m. until 9 p.m.

It was hardly the stuff of most political dramas, but he won by over 20 points.

Starting a business can be a lot like that political campaign; there are more mundane, “grind-it-out” tasks than exciting strategy. In Mark Manson’s quote above, you have to choose how you are willing to suffer in order to achieve the idea.

You have to learn to love business execution.

Unfortunately, too many would-be founders give up on their good ideas because they paid too much attention to the idea, and too little attention to how they would execute their startup plan. When they realize the grind, the loneliness, and the reality of what it takes to make an idea reality, they give up and go back to what is easier.

Learn to love the execution of an idea. Read well-known books on strategy execution such as such as The Lean Startup, The 4 Disciplines of Execution, or Scaling Up.

Become obsessed with measuring your results in order to refine your execution strategy (which, of course, requires that you keep records from day one).

The rewards of a successful startup

The fact that I have had the opportunity to work with entrepreneurs who are on their second or third business is a testament to the rewards of the entrepreneurial life.

Despite the struggles, hard work, and mundane days of a startup founder, the end result of seeing your idea come to life puts the early startup days into perspective.

As you plan for your startup, commit yourself to keeping great records and your business execution. Before you bring on a business partner, question your motivations.

Finally, reach out to other entrepreneurs and ask them what lessons they learned from their startups.

By doing so, you’ll jumpstart your startup from day one.

We spend time thinking about what we’re grateful for, what we’ve been inspired by, and how we can improve ourselves in the upcoming year, both in body and mind.

With this period of reflection, it’s a good idea to take a look at what worked—and what didn’t—for your business in 2015. Where did you spend too much energy, and where did you not spend enough?

I asked the entrepreneurs of the YEC to share with me their biggest takeaways for their businesses from 2015, and what lessons they learned.

What lesson did you learn about starting or running your business in 2015? Leave me a comment below, or let us know @Bplans on Twitter!

9 lessons learned from 2015:

Lesson #1: Use customer feedback as an engagement metric

You probably have at least one way of measuring how engaged your customers are—but do you seek out their feedback as a way of increasing engagement?

“It’s only been a few months since introducing email marketing workflows aimed at increasing consumer feedback, so many changes are still in development,” says Manpreet Singh of TalkLocal. “Yet, by increasing that basic engagement metric, we’ve seen engagement increase overall.”

“Who knew that consumers are more likely to engage again if a company takes a genuine interest in what they have to say?” he jokes.

Lesson #2: Vet vendors extensively

“Our biggest pain point this year has been allying with several vendors who failed to live up to their promises,” says Afif Khoury of SOCi, Inc. “Even though vendors and third parties are easy to terminate, we ended up wasting a significant amount of money—and more importantly, time—working with the wrong vendors.”  

Afif’s lesson learned? Spend more time vetting vendors beforehand, as it can save you time and money down the road.

Lesson #3: Focus on delivery

Having the best strategy or the most enjoyable company culture only goes so far—ultimately, it’s important that your business can deliver. In fact, Andy Karuza of Spot Survey would argue that it’s “the only thing that matters.”

“If there is one thing that matters in business, it’s that you’re reliable,” he says. “You need to be relentless with your drive to deliver on your promises.”

If your business is falling short, it might be a good time to reevaluate what you hope to deliver to your customers, and either refine your message, or step your game up.

He adds: “At the end of the day, people want to buy results, so be the guy who sells those results.”

Lesson #4: Reduce inefficiencies without burdening employees

Taking advantage of new technological trends may be a great way to usher in the new year. We covered some of our favorite new trends for 2016, and we’re not the only ones looking forward to trying new tech.  

“The goal is to keep our staff happy while increasing productivity,” says Kristy Knichel of Knichel Logistics, who will be focusing on how she can leverage new tech in her business, in a way that benefits her employees.

“Our industry is increasingly competitive, so in order for us to grow in a scalable manner, we need to reduce internal inefficiencies,” she says. “After a successful 2015, our plan of attack for 2016 is to leverage our new technological acquisitions by making those platforms work better for our employees.”

Lesson #5: Hone in on your true purpose

In 2015, Jere Simpson of KITEWIRE INC decided to be more selective.

“We stopped reaching our hands out to anyone that would throw some coins our way,” he said.

While this may seem like a bold, risky move, it paid off. “We spent time better crafting our purpose and made sure it was something all current and future employees could get behind,” he says. “The result? Our best year on record.”

Lesson #6: Hire more employees than you think you need

“Don’t be conservative with the number of people you hire,” recommends Ayelet Noff of Blonde 2.0.

If you’re worried that this will leave you with the proverbial excess of mouths to feed, Ayelet believes you’ll find that this isn’t an issue.

“Turnover in today’s world is high. People no longer stay at a job for 30 years. You’re lucky if they stick with you for three,” she says.

Her advice? Hire more, and you won’t be left wanting. “If you plan to grow rapidly, always be prepared for a situation where people will leave,” she says. “Hire more than you think you need. It’s better to have a few extra hands than be left with only a few that limit you from growing.”

Lesson #7: Grow and deepen your network

Is your goal for 2016 to improve your networking skills?

While that’s a great goal, Matthew Capala of Alphametic spent 2015 learning about the value of getting deeper into his existing network, rather than growing a new one.

“With the limited time we have, I’ve learned to stay focused on deepening my relationships with the people I already know before adding more to my business network,” he says.

His advice? “Take a meeting with someone you already know instead of going to a networking event where you don’t know anybody.” This way, you can build a smaller set of stronger connections, rather than a large network of people you really don’t know all that well.

Lesson #8: Remove negativity

In 2016, let go of any negativity surrounding your business. “Negativity is like a cancer to your team and business,” says Megan Armstrong of Dogma Training & Pet Services, Inc. “Negative people or clients rarely change, so this past year, I learned to remove them sooner.”

How did Megan’s business improve as a result of her elimination of negative clients and business associates? “[Negativity] becomes easier to identify, and your time is better spent on the positive aspects of your business,” she says. “The rewards are immeasurable as you spend more time on the things that matter, experience less stress, and create a better atmosphere for your team.”

Lesson #9: Embrace the crazy adventure

“This year, I’ve learned that no matter how high the highs are (or how low the lows feel), they will pass,” says Alexandra Skey of Rallyon. “You will always move out of the period you are in, and having people you can lean on through this process is essential.”

What has 2015 taught her about weathering the storm?

“I’ve become OK with sharing that everything isn’t always perfect and realized that there are always people who are willing to help,” she says. “Starting a company is an adventure.”

Your plan just got rejected. Welcome to the club.

Whether it was angel investment you were after or venture capital, or even investment from friends or family, you didn’t get the money.

Reality check: You’re the rule, not the exception.

In an average year in the U.S., more than six million businesses get started. But, fewer than 100,000 businesses get angel investment, and fewer than 5,000 get venture capital.

Consider that the average startup cost of a new business is about $10,000. So the myth of startups going from plan to funding to launch is just a myth. Most startups go from plan to launch to real world, without getting anybody else’s money to spend. Most startups are on a do-it-yourself-or-go-broke plan.

Also, please don’t get strung along forever with would-be investors who flirt with you but never decide. Assume that for investors dealing with startups as prospective investments, a yes means maybe and maybe means no.

If an investor says yes they mean maybe, and if they say maybe they mean no – via @Bplans @TimBerry
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Part 1: Get a clue

In an earlier post here on Bplans, I suggested that investors offer a useful filtering process for businesses:

The investment process works as a filter, sorting business plans, pushing some to the top and others out of the way.

This filtering process is a good thing for many entrepreneurs who have the sense to listen to it. If the investment community doesn’t invest in a plan, there may well be some very good reasons why not.

Sure, there are exceptions, people who made their own way despite rejections and hit it big.

However, there are a lot more cases of people who didn’t listen to investors and pushed their plan anyhow, borrowing too much money, investing funds of friends and family, and ending up in failure.

So my suggestion here is simply put, get a clue.

Don’t blame the investors. Don’t blame your process. Startups and ongoing business is a long and winding road, not one that ends with rejection from investors. Many deals that do end up getting investment started with a rejection the first time through. Many more are just not good investments, and some of those can become really good businesses eventually without ever getting investors, or by building the business first and getting investors later.

Way too many people blame the investors. They didn’t get it. They weren’t listening. They were biased because of one factor or another. One key person had it out for you, and sabotaged the deal. Don’t ever talk like that. Even if it’s true, you still come off wrong. Anybody familiar with angel investment and startups will take that the way a potential employer takes it when you complain about your last job while trying to get your next job. You’ll never get a fair hearing.

Others blame the process. If only they’d had somebody introduce them sooner. If only they’d used a different forum, or format. If they’d taken the first appointment, or the last one. If they’d had a better pitch deck, or a shorter summary. If they’d edited their business plan better, or made it longer, or shorter, or added more appendices.

Don’t give up just like that; take the second step below and diagnose your situation. Notice that what I’ve suggested here is what not to do: whining, blaming, complaining—rather than what to do. That comes next.

Part 2: Do a deep-dive diagnosis

Take a step back from your disappointment and dive into pulling the real meaning out from the murky emotions and confusion, into the opening of cool hard business analysis and realistic next steps.

You need to decide whether to revise and try again, or revise and change directions, or give it up. Of course there are infinite variations on those three themes, but you get the point.

Start your diagnosis by getting as much feedback as you can from the investors who rejected you. We’re all human, including those investors, and nobody likes rejection. Most of them aren’t anxious to get you real feedback, because it’s delivering bad news, and not fun. And, it’s not their duty.

Most of the investors I know and work with try to give good feedback with rejection, but they don’t always manage. Feedback may not be formal, and may depend on the good intentions of only one or a few of the people involved. Make an effort to get feedback, and if you get it, be grateful for it. To smooth the process and make it easier for everyone, ask specific questions.

Here are a few common problems with startups from the investors’ point of view:

1. They want a credible management team with prior startup experience. A startup is a special experience, and investors don’t want to fund your first trip. You don’t have to have a success in your background—failures teach a lot. Just know what it’s like. And a team or two or three people, who have backgrounds that indicate they can do what they have to do, is better than a single founder.

2. They want a potential big market, with good product-market fit, so there’s a shot at growing your valuation 10, 50, 100 or more times what it is when they write their check. As a corollary to that, they want your business to be able to scale up, so it’s either product or web or mobile based, or it’s a productized service. Can you increase sales tenfold without having to increase your headcount proportionately? If so, then it’s scalable.

3. They want defensibility. That might be patents, maybe trade secrets, maybe some strong experience and market knowledge. It’s something that says your deal won’t be swamped by a big competitor if it starts to succeed.

4. They want a business that will grow fast and big with the input of their money, and will be able to continue growing with more money, so that in three to five years it offers the early investors cash out with some big deal like getting acquired. One of the lesser-understood facts of outside investors is they don’t make money with a healthy growing company that is cash-flow independent and doesn’t want to bring in more money to grow faster.

5. They want a business that’s already moving, not just treading water waiting for investment. That’s what experts mean when they say get traction, and what traction actually is depends on your specifics. It might be that you launch your site and get early subscribers, develop a prototype and test it professionally, or get the mobile app on the app stores and get downloads. Get users, get distributors, or get a few big early clients. Get moving.

Investors won’t invest in a questionable team, but even a good team is weak until they’ve gone from idea and plan stage to actually doing something. Investors invest in the work already done, proving credibility. Not just in what you say will happen in the future.

A fact of life is that investors don’t always tell the truth about rejection. I’ve seen many cases in which startup founders didn’t ask why their deal was rejected, or responded to early feelers wanting to argue back. Founders who react aggressively to questions during a presentation, seeming ungrateful or even hostile to doubts, will rarely get good feedback.

I’ve seen investors who feel the startup team is weak, inexperienced, or not likely to listen and learn, who don’t bother to tell those founders that because their attitude isn’t conducive. And I’ve seen investors invent some vague generality because they don’t want to get into awkward explanations of personality-related doubts.

For example, I was in a group that was pitched by a founder who blamed a supposedly incompetent attorney for one problem, and a supposedly dishonest partner for another, and an incompetent vendor for a third. Nobody wanted to deal with that man at all, not even to explain why not. He got no feedback.

All of which explains my suggestion that you ask specific questions, and, by the way, frame them well. Make them easy to answer. For example, don’t ask whether your investors doubted your team, but rather whether they would suggest adding another person with some other skill set. Ask them whether there was some additional information about your market that would have helped. Ask them how they suggest getting traction now, starting today. Ask them whether they think your idea is patentable, or can be protected by copyright or trademark. Ask them to give specific advice, based on possible problems. Make it a multiple choice question, not an open-ended question.

Consider the investor feedback very carefully, but don’t take it as gospel truth.

Don’t ignore the possibility that you are never going to get outside investment for your startup. You might have to proceed without it. That doesn’t necessarily mean you have a bad business. Lots of good businesses are not attractive investments for outsiders. The best of these are the ones that can grow and prosper as owner-operated businesses without requiring capital input.

Part 3: Set the right next steps

With diagnosis in hand, determine your next steps.

1. If you decide you have a good shot at succeeding with investment, make the right revisions. What you need to do next is determined by your diagnosis in part two. It might be adding to the team, refocusing your market, beefing up intellectual property protection, validating your business with early sales, or something else. You might also be looking for different investors, a different forum, or different investment amount.

2. If you didn’t already, do more homework on which investors to approach. Investors generally have preferences related to where they invest, in what industries, what amounts, and at what stage. Narrow your search down to investors more likely to be interested.

3. If your diagnosis indicates that you’re not likely to get investment, revise your plan. Focus on the parts of it most likely to generate early revenue. Think about bootstrapping. Revise your spending downwards. And ask yourself whether the revised plan can still fly. Don’t give up on bootstrapping if you have an opportunity to pursue. And if you can’t do it without investors, then drop it. Don’t continue blindly toward a goal you can’t achieve.

Please remember that most businesses start up without investors. If you really do have a  product-market fit, you really are offering a value that people want, and filling a need, then bootstrapping might work and you can build that company. And if you don’t, better to recognize the problems and move on.

While entrepreneurs strive to do their best, mistakes are sometimes unavoidable. However, we small business owners can take some comfort in the fact that we’re not at the helm of a massive corporation where a mistake can cost millions. As you’ll see, even CEOs of some of the world’s biggest corporations get it wrong sometimes.

Bill Gates: Ignore upcoming areas of your business at your peril

There’s no denying that Bill Gates is a visionary, founding Microsoft in 1975 and monopolizing the tech industry for decades. However, one area where he fell short was in ignoring the search engine market. While Microsoft introduced MSN Search in 1998, the site purely used an existing search engine, Inktomi, to gather results. It seems all Gates’ attention was focused on browsers, allowing Google to come along and become everyone’s search engine of choice. In 2009, Microsoft introduced Bing, but it has never measured up to the popularity of Google.

If we can learn anything from Gates’ mistake, it’s that you shouldn’t ignore your competitors or an upcoming area in your field, particularly in the technology sector. Technology is evolving all the time, and it’s in your best interests to keep up, adapt quickly, and stay one step ahead whenever possible.

Ronald Johnson: Know your customers, or face losing them

When Ronald Johnson took the helm of the failing J.C Penney corporation in November 2011, he received a warm welcome. Many were intrigued to see what the former head of retail at Apple would bring to the company.  

Unfortunately, a series of bad judgments followed, including firing the company’s long-time ad agency, laying off 10% of its corporate staff and thousands of middle managers, and ridding the stores of sales and discounts. The company saw its revenue drop by 25% in 2012, and Johnson was unceremoniously ousted from his position in April 2013.

While Johnson’s radical changes may have worked elsewhere, in this instance it shows the importance of knowing your audience. Avoid making the same mistakes by carrying out focus groups, speaking with your customer base, and keeping communication open to see how your customers would react to big changes in the way you operate. 

Richard Branson: Don’t underestimate your competitors

With over 100 companies under his “Virgin” brand, it’s not surprising that Richard Branson will have had a few failures along the way.

One of his biggest mistakes since starting his business came in 1994, in the form of Virgin Cola. Originally only available in Virgin cinemas and on their planes, the market shares for the drink peaked at only 0.5% in the three years it was on sale in the US, while the UK producers went bust in 2012. While Branson could afford to make such a big mistake, it’s unlikely the majority of businesses could. Branson said, “I’ll never again make the mistake of thinking that all large, dominant companies are sleepy!”

Branson’s mistake demonstrates the importance of never underestimating competitors, and shows that it’s vital to carry out detailed market research before releasing a new product into an already saturated market. However, perhaps the biggest lesson we can take from Branson is that we shouldn’t be afraid to take risks, but we should be aware that they might not pay off!

Steve Ballmer: Perform thorough market research before commissioning a new product

During his 14 years as head of Microsoft, Steve Ballmer was constantly coming up against Apple’s newest technology, and often falling behind. For example, the Zune, Microsoft’s answer to iTunes, came out five years too late and was widely panned.

However, the biggest mistake of Ballmer’s tenure is largely classed as being the Surface RT tablet. Unfortunately for Ballmer, the Surface didn’t sell and the company lost over $900 million on it.

Like some of the other CEOs in this list, Ballmer let his competitors get the jump on him. If you are releasing a product, make sure that it stands out from the ones produced by your rivals.

Tim Cook: Only launch a product once it’s truly ready

While Cook’s run as CEO of Apple was an overall success, he did run into a few problems along the way and made some mistakes, notably the Apple Maps fiasco. 

In 2012, Apple launched its iOS 6 Maps, which was riddled with bugs, such as inaccurate location placement, mangled satellite imagery, and lack of basic points of interest in big cities, as well as the confusing replacement of native transit directions with third-party routing apps. While bugs are par for the course in the initial stages, launching the app in that state caused confusion for users and left many at Apple red-faced, with the blame ultimately falling on Cook.

The Apple Maps fiasco shows the importance of thorough testing of new products before release and the damage that can be done to a brand should it ignore that stage. Fortunately for Apple, the damage was not long lasting, but that’s not to say that other brands would be forgiven quite so easily.

Philip Clarke: Honesty is the best policy

While Philip Clarke was CEO of Tesco, he made many mistakes, the most notable of which were financial. In September of 2014, news broke that the supermarket chain had overestimated its half-year profits by £264 million.

The chain of errors that resulted in the overstating of the company’s profit are now under investigation, with Tesco’s credit rating under review, their shares slumping, and the possibility of executives having to face MPs over the mistake.

As is generally the case, Clarke proves that honesty is the best policy. His mistakes attest the importance of accountability—not to mention accounting! Finally, don’t try to pull the wool over your stakeholders’ or customers’ eyes, it’ll only come back to bite you.

Mike Jeffries: Think before you speak—remember, you are representing your brand

Abercrombie & Fitch’s CEO Mike Jeffries’ words came back to haunt him when an interview he gave stating the store only wanted “thin and beautiful people” to shop with them resurfaced.

The original interview from 2006 re-appeared online in 2013 and caused outrage among the public and celebrities alike. The company—and Jeffries in particular—came under fire for the comments which stated the shop was “exclusionary,” with its target market being only thin people.

Jeffries later issued an apology for his comments via the company’s Facebook page. His behavior highlights the importance of thinking before you speak; a CEO doesn’t just represent themselves, but also an entire company. In this internet age, your words can come back to haunt you—so think before you speak.

Tony Hayward: Be accountable—hold your hands up when things go wrong

Tony Hayward, Chief Executive of BP, had a lot to deal with when an explosion at the Deepwater Horizon oil rig sent over 130 million gallons of oil spilling into the Gulf of Mexico.

While it might not have been Hayward’s “mistake” as such, the way he dealt with the aftermath most definitely was. The CEO referred to the BP oil spill as “relatively tiny” compared with the “very big ocean,” a statement which was met by disapproval from environmentalists everywhere. The blast in April 2010 killed 11 people and cost BP more than $40 billion; by July of that year Hayward was out of a job.

If Hayward’s actions can teach us anything, it’s to accept responsibility for mistakes and don’t try to downplay them. We all make mistakes from time to time, and while you might not be able to change the situation, you can control how you deal with it. 

David Petraeus: Mix business with pleasure and risk irreparable damage to your reputation

While serving as Director of the CIA, Petraeus began an affair with his biographer Paula Broadwell; for a man whose job was all about secrets, he didn’t do a very good job of concealing his own. To communicate covertly, the pair shared a Gmail account where they would write emails to one another, but would only ever save them as drafts rather than sending them.

While this might have seemed like a cunning plan, it wasn’t cunning enough—the affair was uncovered by the FBI. The ensuing FBI investigation resulted in the end of Petraeus’ career as head of the CIA and the affair became a full-blown scandal. Petraeus’ situation proved that it’s not a good idea to mix business with pleasure—it’s as simple as that!

Reed Hastings: Don’t ignore the user—they can make or break your brand

Reed Hastings, CEO and cofounder of Netflix, felt the public’s wrath in September 2011, when he announced that the DVD section of US Netflix would become separate from the streaming service and renamed Qwikster.

While the website was pitched as a way to make it more convenient for users to access DVDs, customers felt it had the opposite effect. Fortunately for Netflix users, the ill-advised decision was short lived, and by early October of the same year Qwikster was no more.

CEOs should see Hastings’ mistake as a warning not to ignore your customer. As with many of these situations, it’s important to thoroughly research changes to your business model that will significantly impact your customers. Don’t ignore your user base and think that brand loyalty alone will see you through major upheaval.

What can you learn from their mistakes?

The mistakes made by these CEOs often stem from an error in judgement—from dismissing competitors to thinking they’re above suspicion. While you will make mistakes as CEO, heed any warnings, be sure to thoroughly research new product ideas, keep an eye on competitors, and never underestimate the general public—they have the power to make or break a brand!

While accounting software has made bookkeeping and accounting easier for small businesses, it’s also made errors and accounting mistakes—from incorrectly categorizing a transaction to doing all accounting yourself—much more common.

Some accounting mistakes are minor, insignificant, and—when they’re inevitably noticed by someone within your business—easy to correct. But others are more serious and could have a significant effect on your business’s financial health.

Over time, poor accounting practices can distort the reality of your company’s fiscal health. In severe cases, repeated accounting mistakes and bad accounting practices can lead your business toward insolvency or company administration.

In this article, we’ll examine eight of the most common small business accounting errors and explain how they can create issues, both small and significant, for your business.

1. Assuming profits always mean cash flow

You just closed a $50,000 deal that will take your company three months to fulfill. It’s going to cost your business $20,000 to fund the project, so you book a $30,000 profit on the deal before you’ve delivered anything.

Big mistake. What happens if the deal, rather than taking three months, runs into an issue that causes an additional three months of delays? What is your costs increase, making the $20,000 costs estimate inaccurate?

It’s tempting to write down each deal as income when it happens—after all, it’s new income for your business. But doing so can make your company seem healthier than it really is and give you a distorted picture of your company’s real condition.

2. Not taking bookkeeping seriously enough

The key to effective accounting is recording everything. From small transactions to large payments from customers and clients, it’s important to ensure that everything is recorded and properly categorized in your accounts.

No matter how small your company might be, taking accounting seriously gives you an accurate, reliable picture of your company’s health, letting you determine exactly how well (or poorly) you’ve performed in a given period.

From categorizing different types of assets and liabilities correctly to performing a monthly check of your books and accounts, establishing a serious bookkeeping and accounting system for your business is the key to keeping it financially secure.

3. Failing to specify employees and contractors

Does your business have employees? If so, are they employees of your business, or people and companies you’ve hired on contract? There’s a big difference between an employee and a contractor—a difference that you’ll need to account for.

Understanding the difference between an employee and a contractor, as well as the accounting consequences of this difference, is vital to avoid your business recording its accounts inaccurately.

4. Managing all of your accounting in-house

Do you handle all of your bookkeeping and accounting in-house? When you run an extremely small business with limited revenue, it can be tempting to lower costs by handling your accounting on your own.

While taking care of your accounting yourself might seem like a great way to save money, it could actually be costing your business money. An accountant will have greater costs than managing your accounts by yourself, but will also save you money.

From tax deductions that you didn’t know about to errors that are difficult to see in your own company but easy for an expert to notice, managing all of your accounting in-house causes you to miss an opportunity to save money.

5. Failing to reconcile books with bank accounts

It’s important that your business reconciles its accounts frequently. Reconciling is the process of checking that an account balance as listed on your books is accurate and correct, ensuring that it matches the real balance of your bank account.

From time to time, small costs and expenses that you might not think about at the time could go unrecorded. Reconciling your accounts—from your business’s bank cash to its payable accounts—lets you accurately track your financial situation.

Small businesses should always reconcile their books every month to ensure all of their transactions are accurately recorded, preventing their books from becoming out of sync with the real status of their accounts.

6. Forgetting to record small transactions

How does your business manage its small transactions? It’s very easy to think of petty cash transactions as unimportant, but it’s essential that your business has a record of all of its spending, no matter how insignificant.

This is especially important in retail environments, where many transactions are cash-based. It’s also important to record small transactions like paying for a postal delivery, even if the cost is insignificant.

Stay on top of the small transactions and it becomes far easier to manage the bigger ones. By keeping a record of small transactions, you’ll be able to easily manage your books as your company grows in size and its number of transactions increases.

7. Poor communication with your bookkeeper

Does your bookkeeper know what’s going on in your business? It’s important that your business keeps full information of its transactions, and even more important that this information is clearly communicated to bookkeeping.

Seemingly small mistakes like purchasing products or services—especially those with monthly recurring costs—and not reporting this to your bookkeeper can end up causing serious problems and lots of extra work further down the line.

As well as clearly communicating with your bookkeeper, keeping a paper record of all transactions, whether the record is digitized or otherwise, makes it easier to monitor all of your income and spending.

8. Not assigning clear budgets to each project

Does your company start projects without assigning each one a clear budget? Going into a project without any idea of how much it could end up costing your company is an easy way to end up spending far more than you intended.

Failing to effectively budget also makes it difficult for you rein in a project that has clearly cost your company more than it should have. This can cause your company to spend its limited funds on projects that won’t produce a return on investment.

As your business becomes more established, you’ll be aware of how much your business needs to spend to continue operating. This makes it easy to set budgets for projects that are large enough to make success possible, but not excessive or wasteful.