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Covering entrepreneurship and business start up questions for non-residents and US citizens.

 

Oct 16 2013

5 Rules for Staying in Business

by John Gordon | 19:10 GMT

Over the past few decades of being in business, I’ve seen a lot of companies come and go. We help people form companies every day, and all start with bright prospects. Yet most do not survive, regardless of the credentials of the founders, the amount of capital invested, the location of the business and all the other usual criteria that “experts” use to predict success.

What seems to happen is that one of the following rules has been broken. Sometimes smart people are better at kidding themselves (Rule #3) than others. Overly-focused people, or “high-level” thinkers who don’t want to get their hands dirty in the details love to break Rule #4. It’s hard enough to stay in business even if you do everything right, so there is no reason for making fundamental mistakes. Here’s my list of most-common mistakes that business people make. No matter what form of business entity you have, there are some rules that you can’t get away with breaking:

NEVER mix business and personal funds. If you do, not only can there be tax problems you limited liability protection offered by either type of entity can disappear. If you don’t take your company’s independence neither will a judge.
NEVER run out of cash. Do whatever you have to do (within the law, of course) to conserve your cash. Better to make temporary enemies by paying people late than to have no options left.
ALWAYS be honest with yourself about the condition of your business. As a business leader, you must show confidence in the future of the business, but always be aware of the true condition of the business.
Be familiar with bookkeeping so you know your numbers. This will help you avoid worrying about Rule #2.
ALWAYS remember that you must earn more than you spend, to avoid worrying about Rule #2. Following Rule #3 will help you with this.

Rule #1 is the limitation of liability rule. If you mix personal and business funds, finish the job and leave your front door unlocked at all times. You’ll be attracting the attention of the tax authorities at the very least. If you have outside investors, whether your mother-in-law or venture capitalists, they will question how much of THEIR money has gone into your pocket. Following rules #2 and #4 will reduce how often they are tempted to ask, but nonetheless there’s never really a good honest reason to break this rule. Your “stakeholders” will wonder what you are up to when you break it.
Rule #2 By following rules #3, #4 and #5, you are less likely to break this rule. Know your numbers and make sure you make more than you earn.

Rule #3 is more nuanced. If you are the CEO, your team will look to you to know what the future is, to have the answers to the inevitable crises that come up, and to lead them successfully into the future. When things get tough, it may well be time to make your St Crispen’s Day speech to rally the troops. However, you need to keep your Plan B and Plan C ready in the top drawer of your desk just in case a pivot is required in short order.

Whether you are a startup, a mom-and-pop shop, or Enron, following these rules will give your company an extra edge over the average company. At the very least, you will avoid the most common causes of business death or premature sale.

 

John Gordon John Gordon

Founder, President & CEO of USA Corporate Services Inc., a New York City-based incorporation and company management firm. He is a graduate of the Global Executive MBA program from Columbia Business School and London Business School.

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