8 Small Business Mistakes to Avoid

small business mistakes
When you’re running your own business, it’s easy to get lost in the weeds and miss some of the small business mistakes you’re making.

Here are some of the mistakes that I’ve made in my small business over the years, plus mistakes that my podcast guests have shared with me. You can learn from our mistakes and avoid making the same ones so your small business can thrive.

Caution, I’m still a work in progress myself so I’m probably still making many of these mistakes.

1. Being Cheap – One of My Biggest Small Business Mistakes

When you’re not making any money with your upstart business it makes sense to pinch your pennies and go the cheap route. Somewhere along the way though you start making money. The problem arises when you never use that earned money to re-invest into the business.

I’m still cheap in a lot of ways. But I ask myself the question, “Could I be spending money on my business that would propel me to greater heights?”

You should be stopping to ask that too.

Related: 7 Things We Did to Grow Our Small Business from $89,000 to $524,000 in 5 Years

2. Borrowing Money Before Your First Sale

Without “funding” some businesses would never go from good to great. It’s true that financing can take a business to the next level. But I would really question any business that’s looking to generate its first sale by using debt.

If the product or service is needed then you should have a paying customer. Or at least have the promise of a paying customer before you go into major debt. Look no further than the crowd-funding of the Pebble watch to find an example.

3. Co-Mingling Your Finances

One of the best things you can do for your maturing business’ finances is to open up a separate bank account. It’s fine to co-mingle business funds when it’s just coming out of the hobby phase, but there are many reasons to go separate once you get serious.

The obvious reason is taxes (i.e. makes filing a heck of a lot easier). But I think the more important reason is so that you can get an isolated picture of your finances so you can start improving your business.

4. Hyper-Focusing on Sales

The business owner that says they had $1 million in sales last year sounds pretty impressive until they tell you that they also had $1.1 million in expenses.

“full of sound and fury, signifying nothing” – Macbeth by William Shakespeare

As a business owner, you should focus on profit (i.e. the bottom line), not just sales. This means you need to review and reduce your expenses. You also need to analyze your profit margin and attempt to find the right price-point for your product or service.

Appropriately, my friend in sales, David, contributed this point.

5. Not Setting Goals

Quite often, we entrepreneurs fall into our business ideas because of our passion or latest interest. Setting goals for the business, at least initially, may not have come to mind. And goals can sometimes be the antithesis of a good business idea. Goals get in the way initially.

But at some point, you’re going to need to start treating your business like a business and provide a framework for your creativity and ingenuity to exist within.

Make sure your goals are SMART and break your goals down into phases and task that can go on a calendar so you actually make time to accomplish them.

Related: 23 Unique Business Ideas (That You Can Start Today!)

6. Building a Glorified Job for Yourself

Be honest with yourself. Is your business just a glorified job? Meaning, did you create something that has you acting like an employee vs an owner? Do you have freedom, creative license, and are you building your brand?

I’m so proud of having left the corporate world and having started my own gig. But I still have to do certain things every day or week that keep me from being truly free from my business. Not that I want to escape my business, but I need to be able to if I want to…that’s the difference. I’m still a work in progress in this area. How about you?

7. Assuming You Can’t Do Something

You’re a business owner because you were willing to take a risk, no matter how small. That attitude should extend to all parts of your business. Never assume you can’t do something.

I’m not talking about not outsourcing or trying to do it all. I’m talking about not limiting yourself to do more and more with your business. Want to revolutionize your industry? Go do it. Want to be the first to offer something? Make it happen.

8. Doing Something Illegal (The Biggest Mistake)

Doing something illegal is probably a business mistake you want to avoid at all costs. Before you start a business or side hustle, doing the proper research can help you avoid investing your time and money into a venture that isn’t even legal. That’s what happened to Michael Pruser. Here’s his cautionary tale of starting a small business that turned into a legal nightmare.

Business Mistake Example

While in college, I had the great idea to resell Lacoste Polo shirts.

I went to the University of Miami, and I noticed while there that roughly 100% of the male students wore polo shirts. In addition, these students had a wide variety of colors and styles. So what better way to make money than by reselling expensive Lacoste shirts?

After a few days of research, I determined the following (back in 2006):

  • Lacoste polo shirts sell for $72 at every store across the country. It’s rare for shirts to be discounted, and the brands are very expensive compared to others like it.
  • People selling Lacoste shirts on eBay generally sold them for between $40 and $50. These people would sell one shirt at a time, never in lots, and only a select few would sell more than a dozen shirts a week (not because of demand, but because of supply).
  • A lot of the shirts being sold on eBay are counterfeit. Lacoste polo shirts have a specific thread patter, specific tags, and other markers to tell you if, in fact, the shirt is real, or fake. That being said, the differences in quality are very minimal and almost impossible to spot as a casual buyer.
  • Retail markup from product to outlet is insanely high, so if I could find a way to buy at the production level, I could retire!

My first trial run was the purchase of a lot of 10 shirts on eBay. I bought the shirts for just over $250 and then resold them individually on eBay for a total of $450. Take out my shipping costs, Paypal costs, and eBay fees, and I had a profit of $100. A small success, but I thought bigger.

I asked around from sellers on eBay about where they obtained their supply. No luck.

Then I found a website called TradeKey. This website puts buyers and sellers in touch at the wholesale level, and most of the registered users are international.

The Beginning of the End of Business

Luckily (or unluckily as it would eventually turn out), I found a wholesaler in Peru (which is where Lacoste shirts are manufactured) that was willing to sell me high quantities of Lacoste polo shirts at an excellent price of around $20 per polo (shipping included).

Without considering the potential for counterfeit shirts, or safety in sending money internationally (with little guarantee that I would actually receive a product back), I ordered 200 polo shirts.

Much to my surprise, the shirts arrived in a timely fashion, in a variety of colors and sizes, and passed all of the quality checks I could throw at them. My college apartment now had 200 Lacoste polo shirts available for sale, and I routinely had kids coming by dropping $40 – $50 for shirts they could buy at the store for $72.

100% profit was something I really loved, and so I decided to go back and buy another big lot of shirts. This time, double the size!

Go Big or Go Home

Even though business was good, it was slow. Miami isn’t a large University (I think 12,000 undergraduate and graduate students at the time) and my clientele was drying up. So, I took to eBay and started selling the shirts there.

My profit wasn’t as large (with shipping costs, packaging costs, and fees) but, it was still around $10 a shirt. Business was good, demand was good, and I seemed to have hit my stride in finding a way to make money without having to do anything other than being a middle man.

The Letter Than Changed Everything

Then, things quickly changed. I received a letter in the mail (registered mail, never a good sign) informing me that what I was doing was quite illegal.

Much to my surprise, I am unable to buy and sell Lacoste shirts, regardless of where they are from. I need a license to sell a particular brand of merchandise, and Lacoste had found out I was undercutting their retailers and selling for discounted prices.

And as it turns out, PT alerted me of legislation that could be passed, which makes selling even your own individual items illegal.

I was ordered to stop immediately, which I did. I was also ordered to turn over all unsold merchandise, which I did (was only a few shirts by that time). In addition, I had to pay a settlement to Lacoste to avoid prosecution.

I complied, and later I received a follow-up letter confirming that the matter was closed. My eBay ID was banned for life, and I know if I’m ever found selling Lacoste merchandise again, I’ll be in big, big trouble.

What Not to do When Starting a Business

All in all, the experience was a profitable one. Even after the settlement and turnover. It was also quite terrifying, as I was only 21 years old and already being sued; this experience did get me to start a “Lawsuits” file in my strongbox, which is a little more full than I want it to be!

My pitfalls in starting this small business lie squarely in my inability to do enough research about the legality of my business (I assure you I was well researched in the mechanics of the business) and if nothing else, this venture taught me one of the more valuable lessons I’ve learned in life.

If you decide to open your own small business in the future, I urge you to learn from my mistakes and triple check with as many lawyers and legal minds as you can to make sure everything you do is 100% within the law. You can start by asking a lawyer on Just Answer or LegalZoom. You can get an expert’s advice, 24/7.

Bottom Line

Mistakes will happen as your business grows but, the more you know, the more mistakes you can avoid. Learning from my mistakes or those of fellow small business owners can save you time, money, and heartache in the long run. Hopefully, our lessons learned can help you reach your financial and business goals that much quicker.

So those are some of the more common small business mistakes owners make. Are you making any? Are there any other mistakes you could add to the list?

About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.

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  1. This is a great post. I was guilty of #4 when I first started out.  I thought that blogging was going to be all about money and I have come to realize that it’s actually about growing my writing craft, the money is just an added bonus.  Have a great weekend Phil.

  2. boomerangbuck says

    Thank you for this post!  I especially appreciated point 3 and 5.  I hope to learn from this information and put it into practice.  Thanks again!

  3. Jason from One Money Design says

    PT, great post. I’m also still looking for ways to manage my business vs being in the day to day of it. I think it means being more strategic than tactical. My wife told me last week that I’m spending way too much time doing all the work and need to find ways to teach others to do it so I can concentrate on more strategic opportunities that will grow the business. Smart thinking. I think I need to find a way to hire her. 🙂

  4. Nice list, PT!  That first one, “Being Cheap,” sort of tapped me on the shoulder this morning.  While I have been proud of doing things without much money, and that’s been a useful tactic a lot of times, I have to admit that sometimes I have been guilty of not spending when I should have in order to make my business better.  Sigh… I think I’ll be getting back in touch with that guy who wanted to sell me some advertising a couple of weeks ago.   heh…   Here’s one that I think is related to your 7th suggestion, “Don’t Assume You Can’t Do Something.”   It’s this: Don’t Assume That You Don’t Have Something Special to Offer.  I have noticed that people often say that they don’t have any special skills, or there’s nothing especially valuable about what they can do, and they severely limit their business thinking because they don’t know their own strengths.  Sometimes people who can do something easily assume that everyone can do it as easily as they can.  They take their own skills for granted.  For instance, a skillful line cook was telling me about making dinner for a friend, who loved the food and asked for the recipe.  The cook was amazed and said, “What?!  You just ate it!  How can you not know how to make it?!”  You see, she had the special skill and talent of understanding food so well that she could usually know how to make anything just from having eaten it.  She couldn’t imagine that that was something not everyone could do.   So I advise people to note the kinds of things that other people often ask them for help with, and that people compliment them on.  They will probably be able to discover some talents and abilities they have that not everyone has, and that could be an important part of figuring out what kind of business to get into, or how to make that business special.

    • Philip Taylor says

      @MatthewO Thanks, Matthew. I love that additional suggestion and have seen that in my own life as my knowledge of the personal finance topics progresses. It somewhat relates to the ideas of being in tune with your audience: getting feedback is so important.