4 Major Mistakes I Made When I First Became a Business Owner

In the summer of 2013, I had no idea that my life was about to go into a financial spiral. Up until April, I was working two jobs. My primary as a skip tracer for an auto finance company, and working from home as a customer service rep. 

Doing two jobs for a couple of years got me burned out. Not to include that I was missing out on so much with my son. It was tough. After taking a closer look at my finances, I made a decision. In April of that year, I resigned from my customer service job.

Not in a million years would I expect that in June, my wife at the time (now ex-wife) got fired from her job.

My son was only 3 at the time; my income was not enough to cover all of our expenses. Has anyone been in this situation, or is it just me?

As she looked for a new job — with no success, I might add — I had some decisions to make. My salary could only cover 60% of our expenses. The house payment was 45% of my income.

Without giving too much thought to it, I decided that the house would be what I need to halt until she could find a job to supplement our income.

It is now October, she still had not found a job, in fact, she had lost interest in working. She wanted to concentrate on being a stay-home-mom while hoping a miracle would happen.

I had a little emergency fund saved up, which I decided not to use. I also sold some stuff and was able to get around $4,500 — enough to bring the mortgage current.

I called to make a payment, and to my dismay, they did not accept it. The house was gone into foreclosure. An extra $3,000 lawyer fees were added, and they would take nothing but the full amount.

In late October, my life completely changed when a police officer pulled into our driveway to handle us court papers for a foreclosure hearing.

On the positive side, my wife was home and signed for the papers. Otherwise, it would be posted on our door, and our nosey neighbor would see it. She would be calling us to find out what those papers were about.

Running out of time and options, I sold my car, which was paid off, getting us out of foreclosure.

Out of desperation, I started a business, in the hopes it would bring me much needed extra money. It skyrocketed, and in short five months, I was full-time working for myself.

Because everything happened so fast, and I had no experience running a business, I made mistakes. Many mistakes. Here are a few of them.

Not Acquiring the Necessary Insurance

The state of South Carolina, where my company was operating at the time, does not require businesses with less than four employees to purchase Workman’s Comp insurance.

When first starting, I had one contractor, and nothing more. Thus, I decided to save up and not purchase the expensive insurance.

The problem was that 95% of my clients, apartment communities, required vendors, regardless of size, to have workman’s comp.

I was fortunate to find a privately owned and managed complex that hired us just with liability insurance.

But as more clients began to call, the insurance subject kept coming up. Over and over.

In trying to save money, I was turning down work that could have paid for the premium four times over.

After the first month of business, our company was in high demand. We were getting calls right and left asking the services we provided, and how soon we could get it done. When asked to present proof of insurance, our prospect would tell us that we did not meet the minimum requirement. Turning down several jobs was driving me insane.

Against my personal policy, I opted to get a credit card and use it to purchase the needed insurance, which cost $1,800/year, paid in one lump sum. Which I will cover with more details on the next topic.

What’s the lesson?

First, and most importantly, you have to know your target clientele. If most of your prospects demand your company to comply with a requirement, do not try to create workarounds, just comply.

For instance, if the great majority of your possible clients require you to have a certification, invest in yourself, and your business — get the certification needed.

Purchasing Workman’s Comp Ghost Policy

Workman’s comp insurance is a subject on its own. But let’s start on my first phone call to the agent to inquire about the coverage.

My agent explained that due to the size of my business, and my type of work, I would only be able to get the ghost policy. He explained further that it is the best option anyway, and the cheapest in the long run.

Without overthinking about future implications, using my brand new credit card, I purchased it.

Later, I came to the realization that I purchased a number, and nothing else; thus, “ghost” policy. No one told me that the insurance was for owners with no employees or subcontractors. Further, after the first year, my company was audited, and the premium went from $1,800 to $13,500 to be paid in one lump sum.

What’s the lesson?

Before committing to a yearly contract, do your homework. If someone is offering you only one option, seek a second opinion. Most of the time, you will find that you are dealing with a charlatan, and other options are available.

On the insurance side, seek out professionals with high reviews and good credentials. Ask as many questions as you possibly come up with. Read every line in the contract. And finally, do not be afraid of asking someone who has done it.

Lowering Price to Get Jobs

With the desire to grow and build an extensive portfolio, I made several stupid compromises. I thought I was thirsty to build a large enterprise, but I was just naive.

Six months prior, I was scrapping, trying to make ends meet. In a short period, I became a full-time entrepreneur with five people working for me. In April, I landed a massive project that would keep us busy for the next 12 months.

In May, I was called by a property management company that had the most amount of apartments in the Upstate area. Pumped with the idea of being the largest local vendor, I was a victim of my own ambitions.

The management company asked me to paint apartments for $130/each. Granted that they were small (600 sq.ft.), I was paying my subcontractors $100 per apartment. In my calculations, I would pay $80 – $90 per unit and keep $40 – $50 for my expenses. In other words, hardly anything.

The sad part is that this was one occurrence of many.

What’s the lesson?

Do not undercut yourself in any way. Calculate and familiarize yourself with your overhead costs. Quote a job to make money, and stick with your number. Do not lower your price just because you might not have anything to do in the following week.

Hiring a Friend Without Talking Over Salary

With fifteen people working for me, and looking for another three or four, running it without a project manager was wearing me down fast. I had a friend, who was an excellent painter, drywaller, and carpenter — everything I needed. At the time, due to personal problems, he was working at a nursing home.

One Sunday, I invited him to have lunch with me, as I wanted to pitch something to him. He was excited about the idea and said he would start the next day. When I asked about compensation, he said he would think about it, as he was still working part-time at the nursing home but he would put in his two-weeks notice.

For the following two weeks, he would work two full days and three half-days per week. A total of four full days and six half-days. During that time, for one reason or another, he missed two full-days and three half days. This included an extremely important meeting with the owners of a project.

At the end of the two weeks, I closed in on him and said we had to talk about compensation. He explained that he wanted to keep the nursing home job and work the rest of the time for me. With that, he was asking for $700/week, working only 20 hrs/week. That would be $35/hr. Even me as the owner was not making that much.

What’s the Lesson?

Hiring a friend, perhaps was not a bad move. The way in which I did it was the bad move.

Regardless of how bad you need help, do not just pick someone up to work for you. Even if it is a good friend. Create procedures and make sure you follow it to avoid heartache later down the road.

Conclusion

While I made many more mistakes, and my career of mistakes is not over yet, these are only four major ones from the beginning of my business ownership.

I share these because rookie business owners will make poor decisions, and mistakes will happen. However, a mistake is not a life sentence. You can recover from those and become savvier in your trait.

What were your mistakes when you first started?