I hope this title captured your attention. A lot of research (Google it) supports that intelligent people can do stupid things. Critical thinking requires time, effort, and problem-solving skills; being smart is not enough. Sometimes business owners are victims of always being the boss — not gathering input, multi-tasking, being in too great of a hurry, impatience, etc. One of my favorite quotes is “I know I’m intelligent because I know that I know nothing,” attributed to Socrates.
Hopefully as we mature, we get wiser and more reflective, but that’s not always the case. Decision making can also be about evaluating risk. Frequently, we just fail to think things through, and the easy, short-term decision can turn into a long-term nightmare. Here are 10 of the more frequent poor business decisions I have encountered.
1. Failure to Stay on Top of Collections
One report showed that over 25% of construction industry accounts were past due. Another source indicated that 61% of late payments were due to administrative, compliance, and other clerical errors. The older a receivable becomes, the less likely you are going to get paid in full.
2. Business Owners Who Tie Up All of Their Net Worth in Their Company
Maybe you can and maybe you can’t sell your business when you retire. This lack of diversity can include owning your building, having too much equipment and all family member income being dependent on the business. Building and owning your building can be a good investment but make sure you build a property that can be sold and fit into other business needs. For example, building a nice shop at your home can be very cost effective but awfully hard to sell down the road. Diversity is a key to building worth. Don’t put all your eggs in one basket.
3. Letting a Difficult Employee Dominate Culture
Finding good help is hard, but frequently we hang onto the bad apples way too long. Don’t be held hostage by difficult people. You’re merely postponing the inevitable. Once a difficult employee is terminated, you find out how horrible he or she really was.
4. Too Socially Opinionated
Our country is very divided. Our politics, COVID-19, Black Lives Matter, etc. are explosive. Everybody is right and everyone else is wrong. It’s all a little sad. If it ties back into your company, be careful of being too radical on hot issues. I know, I know… you have a right to your passion. Possibly, you might be better off to keep this stuff out of your business and donate the money to your cause? From a customer perspective it’s a no-win situation. I know business owners on both sides of political issues who have tremendously damaged their businesses with such stuff. Business is hard enough without alienating half of your employees and customers.
5. Too Much Work with One Customer
When over 25% or your revenue is with one customer, you have built a risky proposition. I’ve seen this burn businesses time and time again. When you worked for someone else, you had a boss and job. If most of your work now is with just a few companies, you still have a job but with multiple bosses and not a true business.
6. Failure of Put Checks and Balances
Having done this for over 40 years, we find about 10% of our customers at some point experienced embezzlement and flat-out theft, compared to less than 1% having had a major fire of tornado. Too many owners ensure theft by not keeping tabs on people rather than insure theft with insurance coverage.
7. Failure to do Tax Planning and Manage Depreciation
If you wait until your accountant does your taxes to determine your tax liability, you’re not doing a good job of planning. Your accountant tends to tell you to always take a 100% depreciation. This is fine if you paid cash for the equipment, but if you buy on credit and make payments, there may be nothing to write off when the payment comes due. Taking large depreciation deductions does not save you taxes, it merely postpones those taxes.
8. Family Employee Overload
I understand each and every family has different philosophies when employing family members, but here are some things to think about: The pressure of having to feed everyone; impact of sibling and other family dynamics; the influence an under-performing family employee can have on your culture; the sheer math of the situation — hard to have a $500,000 business support five family members. The road to hell is frequently paved with good intentions.
9. Underestimated Overtime and Burnout
Constantly working out of town can cause family and employee issues. Constant overtime can wear people out. Also, many overextend their lifestyle with the extra pay and trap themselves.
10. Failure to Comply with Government Regulations
The government does not have enough employees and resources to catch all safety, wage and hour violations, failure to pay payroll taxes, income tax issues, etc. Therefore, a government strategy can be to make examples out of businesses who are caught cheating. Don’t be fooled into thinking a government inept bureaucrat is going to show up when you're caught with tax fraud or a workplace death. An agent with a badge is going to show up.
Remember, if not well thought out, intelligent people can do stupid things. Slow down and take time to focus on the big picture.