We all love success. Fame, fortune, happiness, right? The problem is that most small businesses don't make a profit right away. Many don't even make many sales right away. Hope for success, but plan for 6 months to a year – minimum – of no profits.
Better yet, expect to have to put more money into the business than you already have. Then if you succeed more quickly, you'll be pleasantly surprised. That's better than the alternative.
Not planning for growth
This is the opposite – and equally deadly – problem from the one above. Don't expect success, don't count on it, but don't let it trip you from behind, either.
At least do some projections on a sudden, rapid growth spurt. Will you be able to finance the extra cost of producing those widgets, or be able to afford to hire help to provide your services? Do you have someone you can contract work out to on a temporary basis? Will you have enough time and energy to handle the extra business without sacrificing quality and performance? Don't expect, but always plan.
Not all customers pay on time
It's not a perfect world, and they never do. Live with it. Don't let things creep out too far – accounts receivable management is important. But don't expect them all to pay without a few timely reminders.
A few will pay early, just to be done with it. Some pay the same time every month, so you have to get used to the cash flow pattern. Others will intend to pay in 30 days, as they promised, but somehow it is always 40 to 50 days before you see the check.
And the rest will hold off as long as they can, so these customers should always be on your watch list. Figure out the best motivation for them, because they'll have the worst impact on your cash flow. Will they pay early for a small discount? If so, give it to them. It's worth the time, hassle, and energy you won't lose to get the money faster.
Subcontractors do not always share your ethics
You do quality work. Your customers may demand it. Your contractors do not necessarily share this ethic. Better to grill them, check their references thoroughly, and do everything you can to ensure they share your work ethic – before you hire them to provide services or goods to your valuable customers.
If a subcontractor offends your customer, work it out with the contractor later. In the meantime, abase yourself before your client. They trust you, and if they lose that trust because of a contractor failure, you have to take responsibility, be humble, and assure them it will never happen again.
Double your time estimates
It doesn't matter what it is, it usually takes longer than you think, one way or another. Double the time you think it will take and you won't be caught off guard.
Payroll Expenses
You aren't an hourly employee any more. Payroll costs a lot – usually at least 30% more than you are actually paying out in wages. Don't underestimate this cost.
Likewise, don't underestimate your overhead costs when figuring out your billing rate. You have to make enough not just to meet your former employer's equivalent salary, but also the extra costs for the company's portion of payroll taxes (10-15% at least), the cost of your own health care insurance, costs for business insurance, overhead costs for your business (utilities, rent, advertising, marketing, supplies, car costs, tools, legal and accounting costs, and much more). That's why that budget – and a conservative one – is so important.
Business Insurance
I'm not talking about health care here, but insurance for your business. Property insurance for your tools and office space, liability insurance if a customer or vendor or employee gets hurt at your location, worker's compensation insurance, disability insurance in case you can't work, errors and omissions protection, general business liability insurance in case of lawsuits, and so on.
Lots of businesses cut costs by avoiding insurance. And lots of businesses fail in the first couple of years because a small bit of insurance would have protected them from that big loss that destroyed their business – and if they were a sole proprietorship, maybe their home and personal assets too! Insurance is important.
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