Ten Common Money Pits Even Brilliant Entrepreneurs Fall Into

If you’re relying on your top line to grow your wealth, you could be missing out on easy opportunities to save money and improve profits, independent of your revenue.

Florida continues its economic growth through 2017. More and more entrepreneurs are setting up shop in the Sunshine State. Many of these new business owners are rapidly bringing their product or service to market, though sometimes they overlook some of the basics of running a business. Truly, the savvy business owner will focus on what they do and outsource the rest.

Many entrepreneurs waste precious time and money by falling prey to these common mistakes. However, there is no need to sacrifice, work harder, or take on new financial risks when they can be easily avoided. Here are 10 potential pitfalls for entrepreneurs to avoid:

1. Not Monitoring Your Credit Score

Discrepancies in your credit score can cost you thousands in interest rates and premiums. Monitor your credit report every six months for accuracy. Doing this has the collateral benefit of ensuring that your identity has not been compromised. Hackers have expanded their operations to include businesses banking and credit services. Not long ago a persistent hacker kept filing a fraudulent insurance claim against my phone by entering my firm tax identification number into the online claim form. Only after several calls to my service provided was I able to finally shut this off. Here in Florida, tax identification numbers are a public record – be mindful!

2. Scrimping on Productive Expenses

Differentiate between wasteful consumption expenses and rainmaking expenses that can pay big returns—you can’t afford to scrimp on those. What gives your business a return on investment (“ROI?”) How much analysis have you done for your business expenses? What is your costs to acquire a new customer or client? Are there more efficient ways to accomplish the same task? Can you automate or outsource? What expenses are a higher priority than others? One expense that seems to be a deep hole is marketing and advertising. Countless businesses pay for broad scope, pay-per-click, social media, print, tv, billboard, and other types of advertising, but little tracking work is completed to determine how effective the advertising campaigns are.

3. Relying on Investment Advisors

Commissioned advisors want to keep your assets under their control. Stay conscious of this bias. And, consider having us, as your objective trusted advisor who is not paid a commission, review all investments before you make them. These advisors can be some of your best sources for sound financial advice. Many are highly competent professionals who work hard to maximize their client’s wealth. Unfortunately, South Florida is home to many con artists, scammers, and folks purely out for themselves. The old adage of “if it sounds too good to be true, it probably is” should be heeded. Due diligence is always appropriate.

4. Reactive Tax Planning

During tax season, your accountant’s focus is on filing returns, not strategizing. Meet off-season at least once to prepare a proactive—not reactive—tax strategy. And always get projections before the end of the year so you can strategize end of year tax decisions.

5. Using the Wrong Business Structure

Review your business structure with an attorney every three years to ensure your structure is still advantageous. There are several different structures available to businesses. Depending on what your long-term goal is for the company, one structure may be more appropriate than the other. Indeed, the structure a business chooses when it is created may no longer be the correct one for current operations. For example, sustained growth of the business may suggest to the owners that the future may lead to “going public.” If the business structure is not correct, going public will be a difficult endeavor.

6. Monthly Payments on Multiple Loans

Refinancing or restructuring your loans could save interest and potentially even taxes. Pay off your least efficient loan first, and you could qualify for lower interest rates on the rest.

7. Blind Investing

Invest in what you know. You—not a commissioned advisor—know what’s best for your business. And that requires you to be tracking your financials at least monthly, and likely weekly, to be making wise choices consistently.

As Benjamin Graham taught, unless you can articulate what it is the business you are investing in does, why are you investing in it?

8. Sharing Profits

Profit sharing with employees solely for tax purposes is like giving the IRS control of your money. Don’t spend money to save money. But, do invest money to create more of what you want. So, consider profit sharing to motivate long-term growth and legacy of your business. Returning to the discussion about business structures, having the correct one will make profit-sharing a simpler proposition.

9. Funding 401(k)s

Your contributions are tax-deferred, but you have to pay those taxes at some point. Because taxes are expected to go up, you’ll end up paying more to the IRS.

10. Losing Passion

Losing the passion you have for your business means lost productivity—easy to do when you’re bogged down with daily details and decisions. Take the time to be proactive about your legal, insurance, financial, and tax planning so you can fuel the passion that brought you to this business in the first place.

Indeed, tending to the palm tree or the oak tree for too long will cause you to be lost in the forest. As the leader of your business, you should occasionally not only step out of the forest, but also purge it from your view for a day. Other alternatives might be to move your desk, change your office, or vary your routine so you force yourself into seeing things from a different point of view. These changes will cause you to re-examine your operations and potentially guide you to see something you overlooked.

Finding new ways to view your business will often help you to keep the passion for growing your bottom line.

If you’re ready to be proactive about the financial success of your business, begin by sitting down with us. As your Family Business Lawyer®, we are here to help you implement legal, insurance, financial, and tax systems that will free up your time and money, so you can focus on what matters.

This article is a service of A. J. Yolofsky, Family Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death.