The latest data from the Small Business Administration (SBA) states that nearly 66 percent of small businesses will survive their first two years. That means only about one third of total businesses will actually fail in these first two crucial years, the main cause being a lack of experience. In my experience, I have seen business owners that have been successful for over 25 years experience fail later in life, but it can be completely avoided with proper planning.
The True Story of a Small Business Owner
Here's a true story. I once knew a small business owner named Jim.
Jim was a business owner and an electrician. He had been in business for over 20 years. When I met Jim he was in his 50's.
He had not saved for retirement, but that's actually not the big pitfall. Jim didn't realize it, but his largest asset was the client base that he had established over a 20 year time period, but that's not the pitfall either.
Let me tell you more of Jim's story, before I reveal the big pitfall.
As a business owner, Jim did not have any other employees. He did everything in the business from electrical work to bookkeeping. He never took a vacation because if he was not working the business was not making any money.
The way he chose to build the business, he simply owned his job and not a business. In certain ways, it was worse than working a job for someone else because he never could take a vacation.
One day he had a heart attack. He was very fortunate and survived the heart attack. Little did Jim realize it at the time, but his troubles were just beginning.
As he was unable to work for several weeks, the business did not generate any revenue. The worst part was his business phone kept ringing. When he was unable to take care of his customers, what do you think happened?
You guessed it. They had to call someone else and there is a good chance, that in the process Jim has lost a large percentage of his customer base.
The Big Pitfalls Small Business Owners Make & How You Can Avoid Them
There are many pitfalls small business owners can make-- a few of which were visible in Jim's life. Some of these mistakes are:
- Not planning for retirement
- Not investing back into your business by hiring & training the right people
- Placing all of your eggs in one basket (ie. your business) instead of diversifying your funds
All of these mistakes can be avoided. Planning for retirement is about getting the right advisor and making an effort to set aside some savings for the future. Taking your business to the next level will require some sacrifices and some investments into hiring and training. Additionally, being smart about diversifying your investments can help avoid financial problems down the road. Most of these mistakes can be avoided by making a conscious effort to change and having wise advisors by your side.
What is the big pitfall you might ask? Owning a job instead of a business.
But even if you have made some of these smaller mistakes, there is still time to make changes or plan for any kind of scenario. As I mentioned earlier, Jim's customer base was a big asset. When planned properly, any asset can be sold, managed, leased or liquidated.