You work hard to stay ahead as an entrepreneur. It'd be a shame to fall behind because of a few simple mistakes.
Even with all that talent, however, you can get tripped up by paying insufficient attention to a few small, unsexy subjects that are easy to overlook but crucially important.
I've been tripped up a few times myself, and know plenty of entrepreneurs who've made similar errors. When I started my first business, for example, I remained a sole proprietor because my CPA didn't believe that I'd earn enough money that year for it to make sense to incorporate. His bad advice cost me thousands of dollars and hurt my operating capital, and it still stings to think about it.
Here are three common mistakes to avoid at all costs:
1. Your Standard Industrial Classification code is wrong.
The Standard Industrial Classification (SIC) system classifies industries by means of a four-digit code. A restaurant has a different code than a dry cleaning establishment. A travel agency has a different code than a steel manufacturer. And so on.
Among other uses, these codes come in handy when an insurance company, lender or credit bureau is trying to assess risk. If your SIC code signifies a high-risk industry, it's going to be that much harder for you to find affordable financing.
It's not that uncommon for businesses in low-risk industries to be mistakenly assigned high-risk SIC codes. Take a former customer of mine who manufactured signs for real estate agents. Manufacturing is a low-risk industry, but he just couldn't catch a break. His applications for business credit cards were routinely rejected.
The reason was maddeningly simple: The name of his company included the words "real estate." Instead of a manufacturing SIC code, he had one for real estate brokers, which is considered a high-risk industry by lenders. He was the victim of a clerical error that haunted him everywhere and that could have been corrected sooner had he taken action quicker.
2. Your company looks younger than it actually is.
Many a small business story begins this way. An ambitious, energetic, idea-filled entrepreneur begins their journey as a sole proprietor, often working out of their home or garage.
Our hero works hard, hustles, systematically builds their business, and before you know it they're changing digs and hiring employees. Their company is growing up.
Five years after they started, they incorporate or form an LLC. They're now recognized by legal entities as an honest-to-goodness business entity versus a quixotic enterprise in their mom's basement. They're pulling in $100,000 a month in revenues and life is getting sweet.
Six months later, it's time to apply for their first loan. They fill out all the paperwork, they dot their i's and cross their t's. And are shocked when they get rejected out of hand.
What happened? It's basic. The fact that they only incorporated six months ago makes them look like a startup. Their $100,000 in revenues raises a fraud flag, and the automated underwriting rejects their application. Lame as hell, but not that uncommon.
You've got to go out of your way to emphasize your history as a sole proprietor when applying for the loan. Don't leave anything to chance. You might want to consider incorporating earlier, too, thus avoiding the problem altogether.
3. You share the same business name with a complete loser.
This one's a little personal for me. Google "Levi King," and the first thing to pop up will not be my smiling mug or a list of articles I've written, but rather a convicted murderer currently serving three life sentences without the possibility of parole.
The same thing can happen to your business. I remember a fellow in Arkansas who owned an excavation company that he'd run for 30 years. He was an awesome boss, an upstanding member of his community, and he paid his bills on time. An all-around stellar dude.
He came to my company for guidance because his business credit was getting slaughtered. Not only that, the sheriff was routinely showing up at his office to serve him with lawsuits. Turns out that his business shared a very similar name with a not-quite-so-stellar business the next county over.
In other words, he was paying--and paying heavily--for someone else's mistakes. Again, he could have saved himself a lot of headache and heartache had he acted sooner. Just like your personal credit, your business credit needs to be monitored so you can nip problems in the bud before they derail your plans to finance an expansion or get the working capital you need to operate smoothly.
By Levi King