By Michelle Girasole on 7/27/2007 7:18 AM

Five Mistakes in Establishing a Businessby Richard Streitfeld, CPA



Obtaining proper advice will save you headaches, not to mention big bucks, in the long run.



Here are five mistakes that anyone starting a business should avoid at all costs, drawn from real situations.



· Not having a plan for your business. A passionate and talented karate teacher bought the studio from its founder a year ago. He borrowed heavily to finance the deal and the studio does not generate enough revenue for him to meet his obligations. The studio’s continued existence is now in doubt and the teacher has even considered personal bankruptcy.



At a minimum, a realistic budget before he purchased the studio might have illuminated the problem and given him pause. He may have looked to delay the purchase, renegotiate the deal or look for additional investors. Many entrepreneurs love what they do but are intimidated by numbers and planning.



A small investment – mostly of time – can make it possible for you to actually succeed at what you love. You don’t need a fancy printed business plan — but you do need to address a few core questions. What are your cash needs? What are the cash needs of your potential partners? Can the business meet those needs? If it cannot, what will your partners do? What will you do? Are there any periods when the business may need to borrow money? Alternatively, if you anticipate profits, will you be able to pay the related taxes when they come due?



· Not getting it in writing – A marketing firm invited a senior employee to become partner. The employee was an outstanding performer and responsible for many of the firm’s largest accounts; the partners thought they had him “locked in” when he accepted.



A month before the kickoff to a major client project, the new partner announced he was leaving the firm – in two weeks. The senior partners scrambled and scoured the partnership...

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