Though it was a year ago this week that Lehman Brothers went down, the challenge to leadership sparked by the company's fall lives on today.

Remember those long autumn days of 2008? We were glued to the Internet, checking the markets and reading the news flashes, and so we watched as banks collapsed, stock markets plummeted, and around kitchen tables all over the world, families stood helpless as their retirement accounts, house values, and hopes for the future evaporated. It was an astounding moment, rife with great danger and great possibility.

To see that possibility, we need only to look to our past. Widespread recessions are not new, of course. The United States, like most other industrial countries, has been buffeted by business cycles in different forms and to different degrees since the late 18th century. The last 30 years have witnessed at least four recessions, one of which, in the early 1980s, was as severe as the current downturn. And as powerful as the events of the past twelve months have been, they are not the first time that we have confronted mind-boggling, high-stakes change. The end of the Civil War, the onset of the Great Depression, the close of World War II — in each of these moments, a great crisis presented not only big challenges, but also opportunities to make the existing system better, economically, politically, and morally. And individual men and women did just that, coming forward with courageous, innovative solutions. That opportunity exists today for our leadership.

Because as it stands now, there is no shortage of people and institutions to look to in trying to understand what caused this crisis: banking executives, ratings agencies, mortgage brokers, boards of directors, and government officials — including those in power who unraveled longstanding regulations that had served to stabilize the financial capitalism. In the years to come, as they look to explain the events of 2008, historians will look to a singular failure of leadership on the part of a range of actors who, over and over again, abdicated their fiduciary responsibility. For example, in the months leading to the financial crisis, many banking managers, including those at Lehman, approved their firms' balance sheets, effectively giving their word to shareholders, employees, and countless investors that their respective companies' risk profiles were sound and that their strategies were in the best interests of those whose assets they held in trust. At the same time, these executives awarded themselves — and their boards approved — large increases in compensation.

In past crises, individual leaders from different sectors stepped up to the plate to seize this opportunity before the window for such change closed. Remember Abraham Lincoln in the waning days of the Civil War; he used that pivot point to abolish slavery and guarantee citizenship and the right to vote to African-Americans. Recall Franklin Roosevelt's administration using the banking crisis of the early 1930s to pass a host of landmark legislation to create the SEC and regulate securities markets — legislation that served the world's financial system remarkably well for fifty years. In the last years of World War II, Roosevelt and later Harry Truman worked to create a stable, prosperous postwar order, an order that included the Bretton Woods agreements and the creation of the Council of Economic Advisors.

Leaders from all walks of life today must learn from history and seize the possibilities for creating lasting, positive change that benefits us all. In the autumn of 2008, not long after the fall of Lehman, the American people elected Barack Obama on a wave of collective idealism that yearned for precisely this kind of responsibility and accountability. The 44th president understands the importance of this moment. Aspects of the financial reform package his administration has put before Congress attempt to create more transparency and stability in the capital markets, echoing the objectives of Roosevelt's legislation in 1934 and 1935. But the proposed reforms still leave many important stones unturned, such as complex derivatives, which would not be subject to exchange trading under Obama's plan. And even what the president and his team have proposed is stalled on Capitol Hill — it is still up to other leaders to turn his plans into legislation.

Can political officials, business leaders, and individual citizens learn from our past and find the perspective and will to make something good out of the crisis that Lehman's bankruptcy precipitated?

Twelve months later, the clock is ticking.

Nancy Koehn is an authority on entrepreneurial history and is the James E. Robison Professor of Business Administration at Harvard Business School, where her research focuses on entrepreneurship and leadership. She is the editor of the forthcoming book The Story of American Business: From the Pages of the New York Times, to be published by Harvard Business Press in October 2009.

This article is the first in a series of posts about common – and costly – financial mistakes small business owners make

As an entrepreneur, you’re hardwired to enjoy a greater level of risk than the average person. But, if there's one thing you don't want to risk – especially in today's economy – it's your personal financial security.

The unfortunate reality is that small business owners often make critical financial mistakes when financing the launch, operation or growth of their businesses, mistakes that can severely limit the amount of funding available for their business and, ultimately, jeopardize their family’s financial well-being.

You may not even realize that you've made a mistake until one day you find out that you can’t qualify for a mortgage. Or you can’t get the to-die-for financing offered on the new car you want. Or you find you can't secure a credit card for your small business. Or worse yet, your business runs out of cash and you can't get the financing you need to keep it afloat.

Consequences like these are often the result of approaching your business without a strategy for responsible business development, with a Technician’s mindset rather than the Entrepreneurial mindset. While The Technician in you has an important part to play, the financial health of your business is about more than just “doing the math;” it's about taking the perspective of The Entrepreneur and thinking and acting with a long-term strategy. It's about knowing that the decision you make today will have consequences in the future.

Remember, a successful business – an E-Myth'd business – is an asset that fuels the path towards more life. Getting your financial house in order is critical to growing your business asset and obtaining financial freedom!

The Biggest Mistake You Can Make

The hands-down biggest and most common mistake small business owners and entrepreneurs make is using personal credit to finance their businesses. Common examples include:

• Paying for business expenses with your personal credit cards
• “Borrowing” money from your personal savings, checking, retirement or other investment accounts to “invest” in your business
• Obtaining personal loans to finance your business expenses

It wouldn’t surprise us to hear that you’ve used one or more of these financing methods to fund your entrepreneurial ventures. Many business-start-up experts recommend these methods for funding new businesses. While their advice is well-intentioned, it can be disastrous. The reason for not using your personal credit for business purposes is simple: it may destroy your personal credit.

By using your valuable personal credit for business expenses, you run the risk of:

• Lowering your personal credit score. When you personally guarantee business-related financing, the lender will require a personal credit check. Every time an inquiry into your credit history is made, your personal credit score takes a hit. The lower your score drops, the harder it is to secure financing, especially financing with the most favorable terms.
• Reducing the amount of credit available for personal use. The more credit you have personally guaranteed for your business, the higher your debt-to-income ratio soars, and the less that lenders will be willing to give you for personal use. Signing that loan for your business could prevent you from getting a mortgage on the new house you plan to buy a year from now.
• Losing everything. When you use your personal resources or credit to finance a business, you chain your financial security to your company’s success. If the company fails, you’ll be left holding the bag and your personal finances will sink along with your business. You’ll never recoup the “loan” you took from your retirement account to get your business launched. Creditors will be calling you for payment. And if things get bad enough, you may have to declare bankruptcy.

Build your Business Credit Separate from your Personal Credit

To protect your financial security, the bottom line is: don’t use your personal credit to finance your business activities. Instead, you should take action to secure credit in your company’s name immediately. 

It's important to remember that you are not your business. An integral part of creating an “E-Myth'd” business involves building your business into an asset – a separate entity that you can pass on to family, sell outright, or own without actually running. It's about building a business that isn't dependent on you.

One of the ways you can support the development of an E-Myth'd business, and avoid the pitfalls we mentioned above, is by separating your personal and business finances (credit included). Not only will this help you create a business that isn't dependent on you, it will help you relate to your business more objectively, track, quantify and keep more accurate financial records, and make better and more informed management decisions in general.

Here's the good news: it's not too late. You can have the peace of mind and financial freedom that will allow you to concentrate on the critical business-building work necessary to create a world-class E-Myth'd business. Whether you're a start up or a well-established business, the time to begin creating a business credit asset is now. 

The System for Building Business Credit

Like any other strategic business work, building good business credit requires patience, diligence and dedication. It helps tremendously to have an ally and an expert to assist you in the process of safely establishing business credit.

To learn more about the how you can create your business asset, click here for a complimentary business credit consultation and to obtain our free e-Book, "Unlimited Business Financing – Without a Personal Guarantee” – a step-by-step process for building a business credit asset.

Learn more

Further Reading

Business Credit: It's not Personal
Your Financial Strategy
Budgeting for Fluctuating Revenue

HRO Today, a premier HR magazine billing itself as the place “Where Business Leaders make HR Decisions,“ recently ran a story about O. C. Tanner’s role in helping the Nielsen company keep employee engagement up during some troubled times. Click here to read some excerpts from the story and here for the full article. (A free registration and login required….and worth it!)