MONDAY, OCTOBER 18, 2021
When first starting your small business you may not realize that
there are mistakes you may make at different stages of your
business’ growth that can slowly kill it for months or even years if
you don’t watch out for them?
These mistakes are not just restricted to the new business
owners. Many operating businesses, including those you may
think are “successful” because they've been around for 10 years,
are often still making them and are most likely losing a lot of
money and/or wasting a lot of time in the process.
Although some of these mistakes seem aimed more at service
type companies, they really do fit the bill for almost any type of
business. Let's go over a few examples that you can use for future
reference.
Underestimating project or service time is a big one.
This relates to service companies as well as companies that sell a
product. This is a service company’s bread and butter. If you don’t
estimate the time and effort required to perform each service your
business offers you will lose out and there is little you can do about
it except learn from it. The best way to estimate time required to
do the job is to do it once yourself or watch your best employee
perform the task, then determine the appropriate fees that you
should charge for the service.
Not knowing your company numbers and setting prices to low.
Notice I emphasized the word “your”. It is a common mistake to
use a competitor’s fees as your pricing gauge without actually
knowing why they use those numbers. Consider for a minute what
will happen if you take a competitor’s price, cut it by 10% and then
start selling.
What if the competition has a bad pricing structure and is barely
making money or even losing money?
What if your costs are more than theirs?
While it's a good idea to know your competitors pricing structure
and maybe even use it as a starting point you shouldn't base your
whole strategy on it.
Different market sectors have their own variables as far as costs
go and you should be aware of them for your project or product
pricing. What you pay for a product you are going to sell is not the
only cost to have in your head when you are pricing your products.
Considering how much your labor and materials cost for a service
is only a part of an hourly rate.
Employees also cost more than just salary and not every
employee is part of your labor cost. Every company has insurance
to pay for. There are overhead expenditures, quality factors that
need to be part of your pricing structure. What you include as
“standard services” or “standard product features” as well as job
site etiquette or in store service or warranties all need to go into
your pricing.
- Not charging for all of your time and costs is mistake most
business owners will admit that they made.
For instance let's say that you run a service company. You can’t
just undercut your competitors price to acquire the job; you have to
ensure that your costs will be covered in your rates. Stores
undermine themselves, for example, when they put more people
on the floor for customer service but don’t charge for it. These
things cost you money and when your competitors don’t do them it
costs them less money.
As a business owner you need to believe that you are providing
your clients worthwhile wares that deserve to be paid for. If you get
the chance to explain why your prices are higher, then take that
opportunity and do it. If they don’t like the fact that you include
things that others charge extra for later or that you treat them
better, then they are most likely completely price shoppers. You
don’t want them as regular customers anyway. Trust me.
- Not getting paid fast enough is another one that easily creates a
cash flow problem.
As long as you are actually making enough
money to pay the bills, this problem can be solved, prevented or at
least managed. To avoid this bill customers very promptly. After all
that’s the reason you are doing the work- to get paid.
- Failure to have solid systems and procedures in place.
Having no procedures and systems in place for tasks like billing,
collections, payroll, interviewing, hiring, job responsibilities,
manufacturing, operating equipment, maintaining equipment and
inventory procedures will help things run smoothly and reduce
expenditures as well.
- Spending too much advertising money without tracking the
results.
There is no point in a marketing campaign if you do not put things
in place that allow you to measure how well the plan is working.
- Spreading yourself too thin is a classic mistake made by every
entrepreneur.
The key is to figure out when you are at that “wearing too many
hats” point and start getting some help. Not getting help or waiting
too long can kill a company. The three big issues people like to
tackle themselves but are usually the ones they are the least
knowledgeable about like; legal issues, accounting, bookkeeping
and daily operations issues.
Keeping an eye out for these potential problems is always a good
idea, the end of a year is an excellent time to make sure you are
not making these errors. Take the time, or make the time to
determine if have issues to address. If you don’t know how to stop
or fix the mistakes, then find some help. The success of your
business may depend on it!