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Christopher Hytry Derrington

Christopher Hytry Derrington

Posted: November 18, 2010 02:17 PM

Starting and running a small business is hard, risky work. According to the SBA, approximately 550,000 new businesses were started in the United States in 2009. Within two years, 30 percent will have failed. Half will be gone within five years. Only one in three will survive to celebrate their 10 year anniversary.

In this Internet era, the speed of business is accelerating, the competition is global, and customers demand more than ever. As a result, business owners have a smaller margin for error.

During my career as a serial entrepreneur, I've made my share of stupid mistakes (and will probably continue to do so). In spite of the inevitability of screw-ups, I take the time to analyze each one and figure out what I should have done differently. The introspection is much more painful and not nearly as fun as celebrating a success. But the old cliché is true: I learn more from my failures than from my successes.

Check out some of the most egregious mistakes new -- and even some experienced -- business owners make, and leave your suggestions for other business mistakes I may have missed in the Comments section.

Ignoring That Cash Flow Is Blood
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Too many times companies don't know or don't understand the importance of cash flow. Money is the grease that lubricates the components of your business. Keep your financials up to date and review the reports. Every Tuesday, the entire Team associated with the company's money flow should review the cash flow, the accounts receivable and the accounts payable reports. We use QuickBooks. It's worth the $200. Your time is too valuable to be using paper ledgers or spreadsheets to keep adequate records.

Additional Cash Flow Mistakes:

1. Confusing Sales with Cash Flow: Many companies have gone out of business by exhausting their resources to fill big sales orders only to find out that they have no cash to pay salaries, bills, and raw materials.

2. Spending Money before You Have It: Never count on investment money or accounts receivable before it arrives and clears the bank.

3. Not Keeping Enough Cash Reserves: There will be tough times when you will need to draw upon it. Build it or get a Line of Credit from a Bank.

4. Keeping all Eggs in One Basket: Servicing only one idea/client. What happens when you lose that client for whatever reason?

5. Buying a Building or Unnecessary Assets when You have Your Initial Success: Many, many businesses have failed when they hit the next tough times and significant cash is locked up in their building or airplanes or cars or boats.
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Follow Christopher Hytry Derrington on Twitter: www.twitter.com/chrisruralamer