Here’s an interesting notion: Do you realize that there are mistakes you can make at various stages of your business growth that can be slowly killing it for months or even years if you don’t watch for them?
These mistakes exist and are reserved for more than just rookie companies. Many working businesses, including those you might think, are ‘successful’ because they’ve been around for 10+ years and are often still making them. And are likely losing a lot of money and wasting time.
Although some of these big and sneaky mistakes seem aimed more at service-type companies, they fit the bill for almost any industry. I’ve done my best with the listings below to give examples to prove it.
This is a big one and pertains to service companies and companies that sell a product. This is a service company’s bread and butter. You need to estimate your time to perform every service in your repertoire to avoid getting burned, and there is little you can do about it but bite the bullet and learn from it. The best way to estimate time is to do it once yourself or watch your best employee do the task and then throw in a little fudge factor on top of it. Time becomes an issue with logistics for product companies, so be aware!
I emphasized your word. It’s a common mistake to use a competitor’s as your pricing gauge if they know why they use those numbers. Think about the nightmare you will get yourself into if you take a competitor’s price, cut it by 10% and then start selling. What if the competition has a wrong pricing structure and is barely making money or even losing money?!?! What if your costs are more than theirs?!?! You can use competitors as a starting point, but you can’t base your whole strategy on them.
Different industries have their variables regarding costs, and you need to be aware of them for your project or product pricing. What you pay for a product you will sell is one of many costs to have in your head when you are pricing products. How much your labor and materials cost for a service is only a piece of an hourly rate. Employees cost more than just salary; not every employee is part of your labor cost. Every company has insurance to pay for. Tons of overhead expenditures need to be part of your price. Oh, by the way, the big one that many people forget about in their price is the quality factor. What you include as ‘standard services’ or ‘product features,’ job site etiquette, in-store service, or warranties must go into your pricing. I’ll get to more about why in the next segment.
This seems like a uninformed statement to some, but I bet most business owners will admit that they have sometimes given away a little too much of the farm. There is nothing wrong with giving a little extra here and there to show you care. But either way, that’s not what I’m talking about here. What concerns me are those that put a lot of quality into their work, products, or stores and do not cover the cost. For example, say you run a service company, and your competitors don’t do a specific standard service. You can’t just undercut their price to steal a job; you need to have that cost covered in your rate and advertise that it comes with the price upfront. 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. Put out better service and then underprice them, and your competition has to wait a little bit for you to fall on your face so they can swoop back in.
As a business owner, you must believe you are providing your clients with worthwhile wares that deserve to be paid for. If you get the chance to explain why your prices are higher, please take that opportunity and do it. If they don’t like that you include things that others charge extra for later or that you treat them better, they are most likely ultimately price shoppers. You want them as something other than regular customers anyway. Trust me.
The old cash flow issue is correct. As long as you are making enough money to pay the bills, this problem can be solved, prevented, or at least made to be better than it could be. Here’s the deal:
First of all, please bill customers very quickly. It is widespread for small businesses to need the procedures or systems to generate invoices and get out the door promptly (see the following segment for more). But, again, this would seem unlikely since that’s why we are doing the work- to get paid. But it is straightforward for the people responsible for bringing this info to the billing people to be too busy to get it there or need more organization to give it to them the right way.
The second part of slowing down or stopping a regular cash flow crunch is to make the quickest payment deals possible with customers and the slowest possible with vendors and employees. You better do it if there is anyway only to pay employees once a month. Contractors always have an issue with this. If you need to pay weekly, please tell them before hiring that they will get the first week held back, essentially buying you a week. It will help, I promise.
Part three involves credit. If your company can get a credit card, then get it. This allows certain essential things to be bought (that you can afford) that might come up during a cash flow crunch. Better yet, especially if you have no choice but to deal with 45+ day customer payments, do your best to get a company line of credit. This is a must if you plan to sell to the government or do commercial service work. Unfortunately, these clients often have 60 to 90-day wait periods.
Too many procedures (known as ‘red tape’) is why many people start their businesses in the first place. Unfortunately, having no policies and systems in place is not an alternative. Depending on the type of industry, business owners must come to a happy medium or chaos, and the unknown will ensue. Some basic examples where procedures or systems are needed include billing, collections, payroll, hr (interviewing, hiring, vacations, benefits, job responsibilities, etc.), manufacturing, operating equipment, maintaining equipment, inventory, sales calls/visits, and logistics, to name a few.
Even a one-person show needs to have some admin procedures in place. This will make it easier to hire temps and subcontractors and control what they are doing for you. Without a watered-down version of a system or procedure to do everyday work, you will be to blame for causing many major headaches as your company grows. I can’t emphasize how important this is when you bring on new employees. I’m sure you heard this before, but I am also a big proponent of having an employee handbook, even for one employee. The trouble people can cause business owners is excellent because they allow you to pay them.
I would almost rather see my clients not advertise than spend without regard to tracking the results. A marketing campaign is only possible if you put things in place that allow you to measure how well the plan is working. Unfortunately, the other wasteful part of marketing that many people need to correct is tracking their previously successful campaigns. Why some people think that just because a 400-dollar-a-month ad worked once very well for one busy season will automatically work every year after that is beyond me.
This is a classic mistake every entrepreneur makes. The key is to figure out when you are at that wearing too many hats point and start getting some help. The solution is to know your strengths and see when you are not performing the duties that demand these skills. For example, if you are the best salesperson in the company, you can’t get caught up in day-to-day operations. If you do, sales will slip, and eventually, you won’t have any functions to worry about. Think about this to help you figure out if you are spread too thin: Did you go into business for yourself to work 80+ hours a week?
Set goals to know when to hire people to take over where you are light on knowledge. Not getting help or waiting too long can kill a company. Most people who start a business do it because they are good at the technical or sales end. If you know the best way to make a widget, then your strength is in production, and that is where your time should be spent. Hire an outside company or consultant to handle the sales and marketing, and then hire inside when you can afford someone full-time. Don’t be something to your company that you are not. It will only hold you back.
The three significant issues people like to tackle themselves but usually need to be more knowledgeable about are legal issues, accounting/bookkeeping issues, and daily operations issues. The odds are that these three things are your weakest link, so if you need a partner with the background for these subjects, then be prepared to get help as soon as possible. It would be best if you did this before you started a business.
Although looking for these problems at any time is a good idea, the end of a year or season is an excellent business interval to ensure you are not making these errors. Could you take the complete, or make the time, to fix these problems? If you don’t know how to reverse the problems, get help.
If you don’t have enough time to figure out if you have these issues or know they are there and can’t break away long enough to do it right, get some help.
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