Business Monday

Opening a small business? 5 common errors to avoid

If you’re thinking about joining the ranks of the more than 405,000 small business owners in Florida, it’s important to do your homework. While it’s easy to get caught up in the dream of owning a successful enterprise, the reality is that many small businesses end up shutting their doors not long after opening them. In the second quarter of 2014, 10,673 establishments started up in the state of Florida and 16,293 shut their doors.

The quarters since have not been much more promising. As a financial adviser, I’ve worked closely with numerous business owners in the Miami-Fort Lauderdale area. Many of these businesses have flourished, but I’ve also observed common missteps they face along the way. If you’re ready to hang your own shingle, these are a few mistakes to avoid.

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Miguel Horvath, CFP, MSF is a private wealth advisor at Horvath Wealth Management, a private wealth advisory practice of Ameriprise Financial Services, Inc. in Miami.

Don’t overlook a formal business plan. Every company, big or small, must have a plan. It doesn’t have to be a long or elaborate plan. Keep it simple, but make sure to put it in writing. Creating a business plan establishes the foundation and blueprint for the actions and decisions you need to be successful. It also serves as a barometer to review your progress and make adjustments as needed. Remember, in most cases, people don’t plan to fail, they fail to plan.

Don’t co-mingle your personal and business finances. Many new business owners are tempted to mix their business and personal finances. They often think it will be easier to manage. This can quickly become messy. Make sure to have a business bank account for your company. Also, consult with a legal or tax adviser about forming a corporation or LLC and the benefits it may provide.

Don’t end up with all your eggs in one basket. There are many successful business owners who have all their wealth tied up in the company. It’s their main source of income and creates a sense of pride. They often know how to reinvest their capital back into their company for great margins and profits. While this may seem fine, if something goes wrong and the business fails, everything is lost.

Individuals who are in business for themselves are doubly in need of a financial buffer should things take a turn for the worse. So, diversify. Set up different investments outside of your company. Make sure to have a retirement account you can fund regularly, consider opening a non-qualified investment portfolio and think about buying real estate if it makes sense for your situation and long-term goals.

Don’t forget an exit strategy. If your business is highly successful, make sure to have a succession plan in place. There may be a day when you want to step back from the daily responsibilities of managing a business and let someone else take the reins. It’s best to have a plan so the transition goes as smooth as possible.

On the flip side, if your company is struggling financially, know when to walk away. You could risk financial ruin if you cash out personal investments, retirement accounts or use the equity in your home to keep a failing business afloat. Give yourself a target and time line, and if it doesn’t work, cut your losses and move on.

Don’t ignore the numbers. Many people get swept up in the day-to-day tasks of running a business, but it’s important to focus on the numbers driving your success. You may have high levels of sales and revenue, but are you really making money? Understand profit margin, debt to equity ratio and return on assets. All of this will help you make better decisions, many that may be critical to your success.

Also, make sure to sit down with your CPA to discuss tax strategies to minimize taxes for you and your company. Your pocketbook will thank you.

Remember that when it comes to managing a business, you can’t be everything to everyone. You have to know your customer, your target market and your niche and stick to it. Don’t try to be the jack of all trades but the master of none. Know and admit when you need some assistance. Meeting with a financial professional can help you feel more in control of your financial situation and keep your small business doors open.

Miguel Horvath, CFP, MSF is a private wealth adviser at Horvath Wealth Management, a private wealth advisory practice of Ameriprise Financial Services Inc. in Miami. He specializes in fee-based financial planning and asset management strategies and has been in practice for 17 years., or go to

▪ Views expressed are those of the author, not necessarily Ameriprise Financial Services, Inc., and are not a solicitation to buy or sell any security.