Not all advice is good advice. To succeed, entrepreneurs must discern what counsel is sound and what is pure fiction. Following are three of the most common myths that can lead small-business owners astray.
Tax myth: Topping the list of management mythology is the notion of increased spending to reduce taxes. It’s true that the timing of expenditures sometimes yields beneficial tax consequences. But this does not mean that unnecessary costs are a good idea simply because they’re tax deductible. Especially disastrous is borrowing to pay for things that don’t add to business productivity. Burning $1,000 to obtain a $300 tax deduction simply results in a $700 net cost.
Image myth: Some people encourage frivolous spending on things the customers never see. For instance, retail stores need visible locations with plenty of parking, but a fancy office suite will not impress clients who interact with a business remotely. In addition, despite the importance of reliable transportation to jobsites or a decent car for client meetings, frequent upgrading to the latest model is wasteful. Remember, image cannot replace performance.
Payroll myth: Perhaps the most important myth to dispel is that you should always reinvest in your business before paying yourself. Instead, focus on operating a profitable business. If you have invested the right amount to launch the enterprise, it should provide some amount of compensation for your work. Always plan to pay yourself something first and expand with what’s left. If you aren’t getting paid for running a profitable operation, you’re only reinvesting in an unprofitable endeavor.