Q:What are some common mistakes to avoid when starting a new business?

A: There is so much for a new entrepreneur to learn. With so many things to do, and so many important decisions to make, it's easy to lose sight of the big picture. One way to avoid some major blunders is to have at least one or two outside advisors who don't work in your business and therefore don't get caught up in the day-to-day stress and excitement of running the company. These people can see things you can't, and often have a clearer view of the big picture.

You should also watch out for these common mistakes made by many entrepreneurs. Think about these points as they might apply to your situation to determine if you are making them now:

• Lack of attention to cash flow: Many companies with great products, great people and great prospects go out of business each year because they don't pay close enough attention to their cash flow. Even profitable businesses can hit a cash crunch and lose everything. Nothing is more important than watching your cash every minute of every day. Spend time early on developing good cash-flow management and forecasting habits. Once you can see cash-flow problems coming six to eight weeks out, you'll have time to do something about them.

• No clear focus: It's imperative to know what you do (and what you don't do) and always communicate that message to customers. It's easy to lose your focus, particularly when sales are down and you see an opportunity to make a few bucks on a different product or service. It's easy to think that if you get some revenues from this and some revenues from that, you'll wind up with big profits. Usually, though, the opposite it true. Consider this--if you needed a heart bypass, would you go to a heart surgeon or to your family doctor? People believe that a company that specializes in a particular area is better at it than a company that says it's good at many things.

• Too much overhead: This is a real killer, and it's hard to guard against because it sneaks up on you. When things are going well, you're likely to forget last year's hard times and assume business will always be like it is now. You'll be tempted to buy that new building, hire extra employees, buy new furniture and purchase nice custom paintings for your lobby. Then the business hits a down cycle, and you can't make your payments. While you were out spending money, the more experienced entrepreneurs were making do with their old desks, worn carpeting and rented office spaces. They have enough cash to weather the downturn, and when the smoke clears, customers who once bought from you will now buy from them. So watch overhead like a hawk--question every dime you spend. Don't be afraid to invest money to make your company better, but don't spend it on things that look and feel good but don't make the company stronger.

• No commitment to self-education: One of the best things you can do to increase the odds of your success is to firmly plant this idea in your mind: You have so much yet to learn, and everyone you meet can probably teach you something. It's crucial that you become a learning machine. Commit yourself to reading books and magazines and listening to audio tapes. Long-term educational commitment is hard for most people because the feedback loop is so long. It often takes a year or more of hard work before you start to see the benefits. Once you get there, though, you'll start to think more clearly, understand more of what you see and read, and your entrepreneurial vision will become clearer. A major difference between success and failure (or, more often, success and mediocrity) is the attitude that makes someone listen to a business tape on the drive home from work instead of the radio.

Keith Lowe is a principal of Pretium Capital Group, a boutique investment bank in Huntsville, Alabama. Keith also mentors new entrepreneurs; serves as chairman of the board for Biztech, a nonprofit high-technology business incubator; and is a co-founder and officer for the Alabama Information Technology Association.

It is still too soon to abandon everything, and I won’t give up. Norman Vincent Peale, When You Want, You Can!

Visit 'Pathway To Success' Archives and Read Past Issues 2001

Visit 'Pathway To Success' Archives and Read Past Issues 2002

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