Question:  I have just started a new business and wish to avoid the most common mistakes. Of all the pitfalls in the marketplace, which do you consider the most common and how can I avoid making these mistakes?

Answer:  I am going to assume you have done your homework before jumping in to this new venture. You have researched the marketplace and your competition. You have developed a business and marketing plan. You have determined what are your costs of operation and at what point your income will exceed your outgo. 

Yet a single mistake can be all it takes to upset your apple cart. Consider these common errors that can doom a small business:

1. Relying too much on one “big” customer – Never, ever have all your eggs in one basket. One customer should never account for more than 10% of your revenue. While it is great to have a large, well know account to lend credibility to your business, it is not uncommon for this client to expect you to be on-call 24/7, and cut your margins to the bone. As in any investment, it is wise to spread your risk. Ten customers producing $10,000 each is preferable to one customer producing $100,000.
2. Losing key employees to competitors – Most small businesses have only a few employees. If you have three key people and you lose one to your competition, you have lost one third of your workforce. The remaining employees must pick up the slack while you search for and train a replacement. The former employee may also take some of your customers. Remember, good people are hard to find, so try to keep them happy. Shower them with praise when it is warranted. Involve them in the decision making process. Be aware of what your competition offers their employees and make sure compensation is not an issue.
3. Having a relationship with just one bank – Most small businesses depend on loans and bank lines of credit to get them started and avoid cash-flow shortfalls. If your bank has a change in policy or management, you may need a backup plan. At the point where your liquid assets exceed the costs of doing business, consider opening a second account with another banking institution that also offers business lines of credit.
4. Thinking you will never get sick or unable to perform your duties – In a small business, the owner is the engine that drives the train. If you have a long-term illness or become disabled, it could mean the demise of your business. First, do not work so hard that it impacts your physical and mental health. Delegate important tasks to capable employees and mentor their progress in a constructive manner. These same employees may be the answer to your exit strategy when you wish to retire. Purchase disability income insurance on yourself. It is as important as hospitalization and life insurance.
5. Trusting a bookkeeper too much – Remember, most everyone is honest until circumstances in their lives dictate desperate measures. You should maintain control over your company’s money. Do not give an employee check signing authority. Have your bank send monthly statements to your home so you can see them first. Periodically check the list of receivables and payables, and scan them for unusual entries. If you have grown to the point you must entrust these duties to others, be sure to assign these tasks among several employees so on one person can steal without the notice of another. Finally, be sure to include a fidelity bond as part of your insurance program.

Gray Poehler is a volunteer with the Richmond Chapter of SCORE, Counselors to America’s Small Business. To ask a question or request free and confidential business counseling, go to https://www.score.org/richmond/local-mentors  Learn more about SCORE’s workshops on the website or by calling 1-800-634-0245.