Here are some of the worst business practices I've seen FLGS do. Don't do this.
(For the record, these weren't all at the same store, but a lot of them were)
1. Bully regular customers into providing free labor. In summer of '01 I was pretty regular at a FLGS. I came by every day to just look around, and spent most of my disposable income on gaming books and Mage Knight minis, and the owner had bought a load of merchandise at some kind of auction. It was a motley assortment of junk: supplements for games nobody had heard of, old editions of semi-popular games, unpopular sourcebooks for decently popular games, rulebooks for games nobody had heard of and were obviously made on a shoestring budget. He asked me to come in and sort through the stuff and price it and put it on the shelf for him. I needed a job, I was a "poor college student" living on my parents dime, so I would have gladly worked for him (and been Professional about it). I asked what he was going to pay me and if it was just this one task or did he want to hire me regularly? He got offended and said he wanted me to do it because we were "friends" and it was just a "favor" (and I didn't know the owner outside of work). That was one big strike against me going back there.
2. Treat special orders poorly. One FLGS I knew made a big deal about ordering virtually anything gaming, anime, comic book, or collectible-toy related and getting it there very soon, no matter how obscure. He hyped it up as his specialty, a sort of "geek fixer". My girlfriend at the time went in to order something specific and obscure. He gladly placed the order and said it would be in the next Tuesday. Come Tuesday, it wasn't there, but it was supposed to be there next week. This goes on for a few weeks before she gives up and stops going there. She eventually tracks it down somewhere online and orders it. She comes back in one day over a year later, and he remembers her and pulls it out, stating it came in "just this Tuesday!" and demands she pay for it. She refused since it had been over a year and he had missed his delivery date a half-dozen times. He banned her from the store for not buying it, and since she'd generally given up on going there and was just looking in out of mostly boredom it was no loss to her.
3. Know your merchandise. Yes, you have your favorite game, but try to at least be somewhat aware of what the books on your shelf are. When the Wheel of Time RPG came out, I saw one FLGS owner pull out the book and look confused and say "what is this, some new edition of D&D?" as he put a couple of copies on the shelf. I tried to explain to him that it was a game based on very popular fantasy novels using the d20 system so it was very similar to D&D, but it wasn't officially D&D and didn't need the D&D books to play. He still didn't seem to understand why WotC was making two separate D&D's (as he saw it).
4. Don't run your personal, closed game in the middle of the store. One FLGS I knew had it's owner run his personal D&D game in the evening in his store. He'd sit there and play with his friends while an employee manned the register. It took up the middle of the store in the main traffic area so you had to walk around it to get to most merchandise, and if you liked the game from watching it. . .it's invite-only and you're not invited, and he didn't appreciate being interrupted in the middle of the game by customers (that's why he had an employee there, but everybody knew the owner so people still often addressed him, while the employee was just another guy in the store who looked like another customer).
5. Have your "in clique" and make sure nobody else can join. I frequented a FLGS near where I lived for years. When I first moved there, I went there every few days just to look around and as something to do. I tried to make some new gaming contacts and friends by talking to the regulars at the store (which apparently many of them worked part-time there, imagine that), but it became increasingly obvious that I was shut out and a guy off the street couldn't just come in and socialize with the in-clique of hangers-on at the store.
6. Don't badger your customers on e-mail lists unrelated to your store. A FLGS owner was on the e-mail list for our college gaming club (anybody could sign up for it). Anytime anybody mentioned buying a gaming book at any other place, he chimed in that he had it as well, and often e-mailed the person who mentioned buying the book elsewhere to chide them for not shopping at his store and that he would have given a better deal, or better service, or had it in earlier than the competitor. All it did was make us angry and we voted to kick him off the list and ban him from it.
7. Never have clearance sales, hold on to everything. This has already been mentioned, but it's such a perennial problem it bears repeating. Way too many (read: almost all) FLGS hold on to old merchandise that is unlikely to ever sell and keep asking full retail price for it. They figure there must be someone out there who is willing to pay full price for it, and they want to get their money back they spent on it in the first place. However, it doesn't work like that. Not only are you taxable on the merchandise you have on hand, you're not going to make up for any of those losses by just holding on to something that won't sell. That's why businesses that are professionally run take non-moving merchandise, cut the price and cut their losses. I've seen one FLGS do this with a huge clearance sale one time to clear out almost a decade of detrius. I saw another do this when they were consolidating two locations down to one (pretty much everything except D&D and popular/well selling d20 was ridiculously low, I got a big comic-book storage box stuffed full of gaming books for $20, which is where I got most of my Original WoD library). I bought lots of stuff I would have never considered at full price, but I'd buy on a steep markdown.