Starry-eyed entrepreneurs face many pitfalls when starting their business so it's important to eliminate the problems if the business has any chance for success.
So said Lorin M. Wiser, a certified public accountant and small business consultant, during a Salt Lake Area Chamber of Commerce seminar in the Utah Power & Light Co. Auditorium.Wiser said small-business owners can determine their own destiny, and if they avoid about 20 pitfalls their chances of survival will be greatly improved. Here are some of the pitfalls Wiser said small-business owners should avoid:
1. The owner's personal characteristics. A business owner must be self-motivated because there is nobody around to tell you to report to work every day.
2. Poor choice of opportunity. Find a service or product the community needs and provide it. Become service oriented and provide some little extra things that will keep the customers coming back.
3. Inadequate start-up capital. Wiser said the amount of capital varies from business to business, but the owner should plan on what he needs and how it will be spent.
4. Too much investment in non-critical assets. Fancy furniture and offices and expensive automobiles won't put money in your pockets. Start with the basics.
5. Location. Most people pick a business location on emotion. For example, a person chooses a location close to his house and pays no attention to the possibility the service or product isn't needed in that area.
6. No knowledge of how to go after customers. Wiser said a business must provide a service and people soon will learn about it.
7. Failure to seek professional advice. Hire a bookkeeper, accountant or other professional to complete specialized tasks and the business owner can spend more time in running the business.
8. Poor choice of the legal form of the business. If a partnership is desired, be certain both parties sign a written agreement to outline responsibility. Also have a trusted third party the partners can go to if there is a dispute.
9. Insufficient planning and investigation. Wiser said many business are "flying by the seat of the pants and jumping from crisis to crisis."
10. No knowledge of how much money is available. Wiser suggests a business have a monthly rather than an annual statement so the owners know how the business is doing.
11. Adequate inventory. Inventory is money, and if it sits around too long it costs the owner money. If the inventory is inadequate the company could lose sales because you can't provide items quickly.
12. Poor credit-granting practices. Three percent should be built into a company's profit structure to cover bad debts. Never let salesmen approve credit because they will do it on emotion rather than good sense because it means a sale to them.
13. Emotional pricing. Don't set your prices so you compete with a company you shouldn't be competing against.
14. Expanding too rapidly. Wiser said some people believe that if they have a successful business, opening of a second store will automatically be successful. He said expansion takes money, and many times a business isn't able to pay for the second outlet.
Other reasons Wiser gave for business failures were wasting advertising money, inadequate borrowing practices and non-payment of taxes that gets businesses in trouble with federal, state and local governments.