Top Three Mistakes Companies/Owners Make

Top Three Mistakes Companies/Owners Make

The men and women of Indiana’s financial sector know that it’s not easy to be a business owner. Throughout their interactions with business clients, it’s likely they’ve witnessed lots of different kinds of avoidable mistakes over the years.

To learn more, we reached out to financial experts to find out what they’ve observed throughout their careers and what they wish more companies knew. We wanted to learn:

What are the three biggest financial mistakes that companies/owners make?


Jump to an expert from: 


Greg Bracco, Senior Vice President, Business Banking Manager
Peoples Bank

  1. Not seeking input from outside professionals can reduce the business’s ability to survive. Many business owners went to college, a trade school, or received formal training in an area other than business. They may be experts in their line of work but may not have a full grasp of the financial and legal aspects of running their own business. An attorney, accountant, and banker can provide guidance on budgeting, projections, financing options, and the viability of a project or idea. There are also agencies that offer free advice on developing a business plan, projections, and market analysis as well as several other services. Outside professionals can also serve as an excellent sounding board when an objective viewpoint as many small businesses are managed by one or a few individuals. They can help the business owner understand how financial decisions can impact their income statement, balance sheet, and cash flows.
  2. Not creating a business plan. A business plan serves as a guide to establish your objectives and allows you to evaluate your progress. Businesses that do not have a plan may take on assignments that are not consistent with their objectives and over-commit on projects where they lack expertise. This can lead to losses, lost business, stress on resources, and negative impacts to employee morale.
  3. Undercapitalized businesses are starting “behind the eight ball.” An undercapitalized business may not be able to overcome a loss or may have to take on additional debt to continue operations. This could lead to additional stress on cash flow and ultimately the business’s ability to survive. A well-capitalized business may be able to absorb some losses without additional debt and increase its chances of success and sustainability.


Archie Brown, President, CEO
First Financial Bank

  1. Inadequate capital – Too often, business owners will inadequately capitalize the company or, conversely, take too much profit out. Capital is critical to being able to build and grow a business. It also provides a vital cushion when the business faces a downturn.
  2. Growing too fast – Growing revenue is important. There are instances, however, when business owners become so focused on growth that they outstrip the company’s financial ability to support those efforts.  Additionally, growing too fast can lead to breakdowns in service or quality, which can lead to missed expectations from clients.
  3. Insufficient management of the cash cycle – Businesses need to manage cash cycles in ways that are appropriate for their specific size. For instance, many businesses allow accounts receivable or inventory to become so large that they become a huge drain on cash flow. It is important to have a good credit evaluation process when extending terms to clients (especially newer clients), and then to follow up daily on accounts receivable that have extended beyond agreed-upon terms. It is also critical to have effective inventory management systems in place to make sure that proper levels are maintained to support day-to-day business needs.


Chris Campbell, Senior Vice President
Centier Bank

Whether it is the new normal, old normal, or just plain business cycles, if companies don’t adhere to sound guiding principles and conduct regular business assessments, even long-lived great companies have the ability to fail. Companies of all sizes are susceptible to financial mistakes, as we’ve recently experienced big brands such as Lehman Brothers, Bear Stearns, Sears, and General Electric.

In my experience, these are the top 3 financial mistakes business owners make.

  1. Use too much leverage: An overleveraged balance sheet, while great when things are going well, is a recipe for disaster. Too much leverage will rear its ugly head when economic cycles are flat and especially when they are down. Lehman and Bear Sterns felt this in the financial downturn, when their balance sheets were leveraged 30:1.
  2. Do not have the ability to adapt: Sears, a 100+ year old company, was once one of the largest and most powerful consumer brands. They failed to adapt to the transformation of retail with smaller stores and a strong e-commerce solution. Great companies adapt to customer changes and evolve their business models.
  3. Lack of vision, creating a culture of limited corporate governance and personal discipline: In the 80’s – 90’s, Jack Welch was the zenith of corporate leadership and in one transition that all changed. General Electric went from a disciplined company to one of arrogance and hubris. It began selling core business units for much less than they were worth and acquiring others for much more than they were worth. There have also been accounts of executives wasting resources such as using two and three private jets as trailer planes when executives would travel.

Strive to be financially conservative with strong, guiding shared principles and a culture of discipline of adaptability.


Kim Henderson, Financial Advisor
Edward Jones

  1. Not having an asset protection strategy. Unless your business is structured as an LLC or corporation (S or C), there is no distinction between your personal assets and your business assets. Even with these protections in place, if an owner personally guarantees a business loan, it negates the protection that was put in place.
  2. Neglecting their retirement savings as well as that of their employees. Many business owners incorrectly assume that establishing a new 401k plan is costly. Not only can a small business establish a low-cost 401k plan that is just as effective as a big company, they may also receive significant tax benefits and deductions as well. (Not to mention the benefits of retaining key employees.)
  3. Trying to manage their personal finances on their own. For many business owners, their business is their financial plan so they don’t give as much thought to their personal financial situation. As a result, they tend to pay more in taxes, fall behind in accumulating retirement assets and do not have enough insurance. Managing personal finances will never get easier so outsourcing to an advisor early on is recommended.


David R. Kibbe, JD, President, CEO
Indiana Trust Wealth Management

Indiana Trust Wealth Management is an employee-owned company in our 30th year providing unbiased trust and wealth management services to individuals, businesses, foundations and non-profit organizations. We understand the potential ramifications of the following mistakes made by companies or their owners:

  1. Trying to do it all on your own: Paying for professional expertise can be costly but failing to do so can be more expensive in the long run. Surround yourself with good advisors who will counsel you on the areas they know best – legal, tax, and financial planning are good examples of the types of advice every business or business owner needs. Look to these professionals as your partners, not simply as transactional vendors.
  2. Failing to diversify your investments: By placing substantial personal resources into their companies, business owners often don’t realize the extent of their exposure to equity risk. It’s important to look at investments holistically, to ensure that personal wealth, including any business ownership, results in a diversified portfolio – or to fully understand and acknowledge the risks of non-diversification.
  3. Sacrificing long-term vision for short-term gain: Stay true to your mission and vision. Don’t compromise by cutting corners that could jeopardize the integrity or reputation of your business.


Steve Kring, Market President
Horizon Bank

  1. Pricing too low. It is almost always better to sell fewer units at a higher price than to sell more units at a lower price – unless you are a discount store. I see too many businesses operate as a nonprofit simply because they price too low. Most people will pay more for higher quality or added convenience. This equates to higher margins and profitability.
  2. Relying on one source of revenue. Businesses must find additional revenue generators. Even the best businesses will lose major accounts, and without alternative sources of revenue, it will create financial hardship. Income diversification is a key strategy in mitigating risk.
  3. Not having adequate insurance protection. In many cases, business owners underestimate how much life, disability and liability insurance they need. They tie up the majority of all of their capital into assets and operations and leave very little to hedge against unforeseen events. Adequate insurance protection is a must to replace lost income, generate a return on investment for surviving family or a partner, or to finance litigation for which businesses are a prime target.


Christina Moungey, Region Manager for Commercial Banking, Indiana
JPMorgan Chase

Though our overall outlook for 2019 is more cautious than in the recent past, optimism remains strong and there are pockets of opportunity for business leaders across the US.

As long as businesses conduct strategic planning around the ‘three T’s—technology, transition and talent,’ and take proactive measures now, they can position themselves for growth in the current environment. Three big mistakes to avoid would be:

  1. Not taking on technology. Business leaders need to be proactive and put plans in place to evolve with disruptive technology changing industries. Start thinking about designating an in-house team to identify threats and opportunities, develop proactive counter measures, and create a contingency plan.
  2. Failing to plan now for future transitions. For business owners, to sell or keep their company is a critical decision that shapes their lives and their families’ futures. It’s important to consider all of your options and assemble the right experts to help maximize the value of the business and achieve personal objectives. Putting an efficient and strategic plan in place sooner rather than later is key.
  3. Not searching for talent. According to JPMorgan Chase’s recent Business Leaders Outlook survey, the limited supply of talent is the #1 challenge for businesses. To compete for talent in a tight labor market, business leaders should consider changes to attract and retain talent, including implementing training programs, improving benefits and increasing wages.


Gilbert W. Rynberk, Group Executive Vice President”
Wintrust Commercial Banking

  1. Lack of proactive communication with your financial partners – The best business relationships are built on consistent and open lines of communication. No one likes unpleasant surprises. Bad news is understandably difficult to share, however doing so as quickly as possible is key to maintaining strong business relationships (and a good reputation). Reasonable professionals can work through a season of “choppy waters,” especially when a plan to solve the circumstance is presented along with the facts. Being the last to find out, or uncovering a problem independently, will cause multi-dimensional damage.
  2. Failure to surround yourself with, and listen to, Trusted Advisors – We have all heard the saying “It’s lonely at the top.” For private mid-sized, owner operated businesses, this can be especially true.  Identifying an informal board of advisors (or even formal Board of Directors) is a great way to stay current, bring in fresh ideas and have an effective sounding board (pardon the pun) for your own new plans and ideas.
  3. Not building a safety net for the business when the sun is shining – Every business runs in cycles. It is tempting to think positive trends are here to stay. That said, we all know that “stuff” happens. It is during times of solid and profitable performance that careful thought should be given to building a strong balance sheet.  Whether we are handed a macroeconomic slow down, or heaven forbid, your largest customer stops paying, establishing a cushion of liquidity and gradually increase levels of equity, can make the difference in survival (and make those conversations referenced in the first point much easier).


Rich Simaga, Director of Commercial Services
Tech Credit Union

Communication between business leaders and their financial institutions is key to building strategies for success.

  1. In many cases, the owners of a company do not have a full grasp of their financial statements or their meaning. The owners must be able to explain to his/her banker what is going on in the company and how this relates to their current request. They must have almost as much knowledge of their statements as their accountant.
  2. The owner of the company must be prepared with a detailed plan for the use of the funds that will be borrowed. Get the amount you need to accomplish your goal. To get less than the amount needed will usually be a problem for the client.
  3. Owners must be prepared to tell their lender what has happened with their company, good or bad, and their plan to correct or expand their operations. The worst thing is to surprise your lender.


Scott Steinwart, Vice President, Manager Commercial Banking
First Merchants Bank

In my experience the three most common financial mistakes that companies/owners make include under capitalization, inappropriate planning, and focusing only on top line sales.

  1. Build Your Balance Sheet – A common question as we came out of the last recession was, “What industries suffered the most during the downturn?” My answer was always the same. It is not what industry you are in, it is whether or not you are well capitalized. Often debt is a necessity, but too much debt can put undue pressure on the company during slow times. Retain your profits, reinvest in your company, and build your balance sheet as a long-term goal.
  2. Plan Well Before Growth – “I really want to reach $XX in revenues” (fill in the blank). That is a noble goal, as long as you are not sacrificing the bottom line. A well thought out plan with projections, a capital budget, pro forma balance sheet, and marketing (targeting the right customers) will go a long way in determining if growth is the right decision. Bigger is not always better.
  3. Don’t Write Off Bad Debt – Let’s dig deeper into customer targeting. Collectability is vital. It’s not a sale unless you are able to get paid. One of the biggest factors in causing a company to fail is writing off bad debt. Diversification is also important. Being tied to one company or industry can make your business susceptible to the economic swings of that company/industry.
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