Over half a million Australians are involved in the early stages of setting up a business.
You’re probably one of them!
With over 25 years of experience in small business accounting, John Corias, senior partner of MAS Accountants, knows the mistakes to avoid when you take the plunge.
The top five red flags Corias sees from his clients are an over-reliance on ego and emotion, undercapitalisation, being underprepared, seeking investors to fast track growth and jumping into partnerships with friends.
So, what is it about ego specifically that makes it bad for business?
It can be a very fine line between self-confidence and ego. Any small business owner requires a fair amount of self confidence in order to overcome the little doubts that fester around inside their heads, and to press on towards their goals even when the wind and rain is hitting you head on.
Where ego takes over from self-confidence is when they cease being able to listen to constructive criticism and plough on regardless. Knowing when to take a step back and take advice can be the difference between success and failure. Learning to discern between constructive criticism and plain old trash talk is the key to being confident without growing an ego and being too good to listen to others opinions.
What are the most destructive emotions for a new businessman, and how does one avoid them?
Any new small business will experience peaks and troughs in the business cycle. Initial enthusiasm can often give way under the drudgery of a quiet season and allow too much doubt and despair to creep in.
Keeping your eyes on long term goals can even out the waves of emotion. Being assertive without letting anger control you is also a key skill for small business owners.
Stand up for yourself and your beliefs but not at the expense of harming much needed business relationships with customers, staff and key stakeholders.
Could you explain ‘undercapitalisation’ for those readers who’ve never heard of it? What should one do not to undercapitalise?
Undercapitalisation refers to scenarios where small businesses run into cash flow problems due to not being fully aware of the cash requirements of a business.
Starting a business always requires a thorough knowledge of what equipment and facilities are required as well as knowing the amount of cash needed to be kept on hand and available to keep the business afloat.
If a key machine breaks down and you can’t afford to repair the machine then business suffers and cash flow takes a double hit. Keeping a clear reserve of “sufficient” working capital at hand is a key factor in successful small businesses.
What are the essential preparations any new business owner should make?
Just as every small business is different, every small business owner is also different.
Yet despite their differences the common requirements of any small business revolve around the old carpenters saying, “measure twice, cut once”. Knowing your key numbers regarding initial business set up costs and ongoing cash flow expenses is an essential part of a business plan.
Get advice from legal and accounting professionals as well as those with recent experience in your industry of choice, after all to be forewarned is to be forearmed.
What are the pitfalls of mixing business with friendship?
As small business advisors we have seen many small businesses fall apart due to soured friendships and the stress they place on the business.
On the opposite side of the fence a poorly performing business places stresses on family and relationships. Taking the time to establish partner agreements and assigning key roles before setting up a business can stop the blame game from causing a falling out between friends.
Knowing how and when to switch off by setting boundaries, both physical and in terms of time, is very important so that a weekend BBQ doesn’t turn into a heated board meeting.