Our guest contributor, Paul Herman, offers a summary of unintended mistakes for small-business owners to avoid.

Enough already with talk of our country’s fiscal cliff. How about the fiscal cliff of your small business?

As a CPA with 30 years’ experience, I’ve seen the lame mistakes of small businesses just as a pediatrician sees the “whole body” of their 7-year-old patient when he pulls off his clothes. I am telling you directly: if you take care of these problems from the get-go, they won’t cause your company to fall off the financial cliff. If you don’t, well, that’s a mistake.

1. No buy/sell agreement or no succession plan in place

If your business is set up as a partnership, you must have a plan in place for the possibility — which is really a probability — that something is going to send your lean, mean machine’s operations awry. Think that debt, disability, divorce, or retirement is too much to contemplate? Most likely, one of these will hit your screen or your partners’, and you will be caught in the jaws of a vice, needing to liquidate to buy them out.

2. Putting all your profits into your business and not developing a plan for retirement

An accountant has the unpleasant but necessary responsibility to let you know the true (staggering) cost of retirement. If you wouldn’t invite one to your “Chuck the ties for a fishing rod” party due to their sober demeanor, I understand. But if you keep plowing all your profits into the business, it’s like putting all your money into a single nest egg. That hardware business you got there, is it so secure that you can keep a Lowe’s at bay, if they locate down the block from you? Not likely. Consider buying your building. Or forking more over to your 401(k).

3. Not keeping up with an annual valuation for your business

If something suddenly happens to you or your key people, you will be screwed if your last valuation took place 5 years ago. As your business prospers, keep up to date. Know what your company is worth. Consult an accountant or analyst with deep experience in valuing businesses. Regular business appraisals will make it much easier to evaluate your present opportunities for growth, as well as valuing your estate in case …

4. Going into series A funding (or other form of venture capital) too soon, and giving too much equity away

I heard this conversation just the other day, in fact. “If we try to raise a million bucks now,

VCs discussing a business proposal.

we will need to give away 40% of the firm. But if we go in for half that, and build out our distribution, down the road we can get more moolah for a lower stake.” Right on. Don’t feed the VCs. Let them just sample the appetizer.

5. Not creatively utilizing non-bank sources of funding

Nowadays with interest rates so low and lending to small business being as competitive as it is, consider non-bank sources of financing such as A/R financing, factoring, or even purchase order financing. There are many creative ways to access capital, so don’t be stuck in old mode when hungry players can offer you a better deal.

6. Not taking care of your most valuable key employees

If your Gal Friday jumps ship, can you replace her? Not if she is that crucial combo of smart, savvy, able to thin-slice (a la Malcolm Gladwell), and keeper of a business network garnered from 20 years of progressive pavement-pounding. So make sure that you check in frequently, to assess how happy she is. Ditto for every one of your key lieutenants. A sergeant without a sidekick is like a souffle without a pouf.

7. Not keeping a cash cushion for compliance

You want to be able to leverage your capital, but if you cut it too close, your properties can become like a case of toxic cleanup, infecting an entire site with a teensy bit of contamination. The unexpected happens. Piss comes with vinegar. Markets go haywire with little human error, and then suddenly you need to pull in cash for compliance. Don’t underestimate here; a controller’s job is to keep your ship safe. Be prudent.

8. Not hiring top-notch attorneys and best-in-class CPAs

If you are the kind of dude who recalls hearing your mom say, “Mind the pennies and the dollars will add up,” then you probably also recall the heyday of Lucille Ball. But no one else getting rich in this new economy refers to her as a comedienne. Just as the nature of comedy has changed, what constitutes professional advisory services has changed, and your key advisors need to be ahead of the game.

When it comes to covering your ass legally or in terms of filings and taxes, you need to hire the best. At some point, someone is going to sue you for something, or the government will hit you up in some way. You need an accountant and a lawyer that are worth their weight in gold, so you will not be bleeding green.

Photos courtesy of Creative Commons, 2.0, MyEyeSees and SeedRocket_.