9 Commingle business and personal money. Keep things "simple" - just have one bank account that you use for personal, business, and whatever. If you have an emergency reserve, keep it in that bank account also.
My response: You need to know if you are earning money from your business or you continually have to feed it. You have enough to feed, without having a business drain you too. If it's all in one bank account, you won't know. Filing taxes will also be harder, and I promise you'll miss legitimate deductions because you forget them or can't prove them. Worst of all if your emergency money is in the same account, it won't be there when a real emergency hits. You'll have already used it for every day life -- so then where will you turn? (see number 8 for the likely answer to that one ...) By the way, there are plenty of financial institutions that don't have a monthly service charge on checking accounts, so that isn't a reason not to have separate accounts for personal, business, emergency fund, and investments. If you need a referral to one of them, I'd be happy to give it to you.
8 Borrow money at 29.99% while earning 0.05% on your savings.
My response: Sounds ridiculous, I know. If you have $1,000 in a savings account earning 0.05% per year in interest, you are being paid (drum roll) 50 cents per year! That's if they don't hit you with a service charge. Meanwhile if you have a $1,000 credit card balance that you pay 29.99% on, that's $299.90 per year you're paying, just for interest expense. Before the $35+ annual fee. Before the $39 late payment, over the limit, or returned check fee. My all time biggest shock on this one was a tax client I had who signed up for an internet service that advertised 1,000 hours for free and wanted a credit card to sign up. The fine print said it was for the first 30 days, but that wasn't noticed. Do the math, there aren't 1,000 hours in a month, so it was impossible to use all the hours. This person had opened a credit card account with a $300 limit to start rebuilding their credit. They used that card to sign up, but never bothered to even open the mail from the company, because "I haven't used my 1,000 hours yet". I got called to help when the client couldn't understand why the credit card company was calling them all the time. Turns out that after the first month the internet service cost $29.95 per month. So the card was being charged $29.95 per month for the service, plus a $39 late fee because the monthly payment wasn't made. When the $300 credit limit was reached, that didn't stop the internet service from being paid -- the card company just added another $39 monthly fee for being over the credit limit. When I was called to help, the card balance was over $600. Including $15 for finance charges, the total monthly charges were $123! OK, that's sounds overwhelmingly stupid ... but it makes a point. You are never going to build wealth paying credit card interest. Period.
7 Don't have a budget - spend freely on those 29.99% credit cards for everything that looks cute and might help your business. Budgets are too confining.
My response: You do need to spend money to build your business. You can accomplish anything you really want to do. But you have to be selective. You can't do everything, at least not at the same time. A budget is your friend -- it helps you remember the choices you made in advance and stick to them -- IFF you compare that budget to what you actually spend each and every month. (PS from my friends at Paul Revere Junior High who had Philo C. Farnsworth for algebra class -- IFF wasn't a typo. It means "if and only if". I love that phrase! And Mr. Farnsworth was tough, but he was passionate about math and made it come to life. Thank you!)
6 Buy a $60,000 gas guzzler with all the goodies to impress your customers and to save on taxes. If your business makes it long enough for you to pay off half the guzzler, then be sure to trade it in for another one and repeat the cycle throughout life. (Of course, if your business doesn't make it and the guzzler is repossessed, then your path to going broke is made that much quicker and easier)
My response: We're at least getting a little better here. You're probably not paying credit card interest rates on the guzzler. (But it's still surprisingly easy to pay $10,000, $20,000, or more in interest on a $60,000 car loan over 72 months). And if you keep good records of your business use, you will save some taxes. But even if you get a zero interest loan and even if you save $20,000 in taxes, you're still out $40,000. If another vehicle for $20,000 will do the job, that's the one you need. You can still put your logo on the outside of that vehicle too. Your customers want you in a reliable vehicle, so you can be there to give them good service. That's all they want, trust me.
5 Have the IRS rule that your Mary Kay business is really a hobby (for example consider, U. S. Tax Court Summary Opinion 2004-59, RALPH D. AND BRENDA KONCHAR, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent - click on those words for a copy of the actual court ruling if you want to check it out)
My response: I don't mean to specifically pick on Mary Kay, you can substitute whatever business venture you like here and the principle is the same if you make the same mistakes. And those mistakes can be costly. You can have a situation where your business that is ruled a hobby generates a little revenue and a 1099 form, on which you will be expected to pay income and self-employment taxes on (that's double social security and medicare -- both employee and employer portions). Yes, you're allowed to deduct your hobby expenses up to the amount of hobby earnings -- but only as a miscellaneous itemized deduction. If you take the standard deduction, or you are subject to alternate minimum tax -- surprise! NO deduction is allowed. Really.
Here's a couple other links to give you ideas of do's and don't for your business: http://www.forbes.com/2009/07/10/irs-taxes-hobbies-personal-finance-hobby.html and http://www.irs.gov/newsroom/article/0,,id=169490,00.html There is nothing wrong with taking a personal passion that starts as a hobby and making a real business out of it. Just be sure you do make a real business out of it. Have a written business plan (see number 1). Follow it. Keep good records. Keep your business finances and banking accounts separate from personal ones. Get the knowledge needed to make your business successful and profitable. Work with professional advisors that will help you get this knowledge (and who will passionately help you succeed). Get the proper licenses and permits. Make sure you have the needed insurance. There's more, of course, but that will come later. I'm trying to give you the why first and then we can discuss the how.
4 Don't worry about finding out what your customers want and need. Assertively talk them into what you want to give them.
My response: You need a marketing plan as much as you need a financial plan. And if that marketing plan is only about advertising, and web sites, and locations, and logos, and ... it won't work! All of those things are vital. After you find out what your customers want and need, and after you figure out how to best give it to them, while still earning a profit. (Otherwise, we're back on our way to going broke. As Pete Clarke, a wonderful marketing professor of mine at BYU loved to emphatically point out, if you are losing 60 cents on every item sold, you aren't going to make it up on volume!) You also need to refer to number 3, because what your customers want and need changes often, and your marketing plan needs to continually adapt to that.