Deadly Sins

Deadly Sin #2

No board of advisors.

Although corporate bylaws or investors require some business start-ups to have a full complement of formal directors, most businesses can get by with a leaner, meaner team. Still, in my experience, every company needs a minimum of three advisors to avoid the rocks and shoals of the critical first months and years of its existence. Call it your ABC Team: attorney (business background and experience), business consultant (either finance or management expertise) and CPA (to set the business up and crunch the numbers throughout its progress).

Although you can bring on friends or family members to fill these roles-often working for minimal compensation (or perhaps equity in the firm)-it's crucial not to enlist lap dogs. You need blunt and direct guidance in the early stages of your business, not yes-people.

Sound sounding board
One of the best ways to use members of your advisory board (your CPA or banker, for example) is to have them prequalify your business' spending decisions. Before every prospective purchase or investment, ask them to answer the following:
a. Is this expenditure necessary right now?
b. Will this make me money or cost me money?
c. Is there a cheaper way to accomplish this (outsourcing, leasing, etc.)?

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This article was originally published in the August 2001 print edition of Entrepreneur with the headline: Deadly Sins.

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