There are business 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.
And these mistakes are not reserved for the rookie entrepreneur or companies. Many businesses, including those you might think are “successful” because the have been around for more then ten years, are often still making them and are possibly losing a lot of money and/or wasting a lot of time in the process.
Although some of these big and sneaky mistakes seem aimed more at service type companies, they really do fit the bill for almost any type of industry. Some examples below so you can keep an eye out for them.
1) Underestimating Project/Service Time
This is a big one and it pertains 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 your time to perform each and every service in your repertoire, you will get 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. For product companies, time becomes an issue with logistics so be aware.
2) Not Knowing Your Company Numbers/Incorrectly Setting Prices
Notice the emphasis on the the word “your”. It is a common mistake to use a competitor’s as your pricing gauge without actually knowing 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 bad pricing structure and is barely making money or even losing money? What if your costs are more than theirs? You can use competitor as a starting point but you can’t base your whole pricing strategy on it.
Different industries have their own variables as far as costs go and you need to 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 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, you have to pay taxes on their salaries, you have to pay workman’s comp, each employee needs a computer, a phone some other equipment, and not every employee is part of your labor cost. How much are your marketing costs? How much does it cost you to acquire a customer? If you have a product that has some sort of membership like a software as a service, or a business advise service or a product where you give updates, or a even a bakery, what is your ARPU (average revenue per user), what is your CLV (Customer lifetime value?) Then there are regular business expenses. Every company has business and liability insurance to pay. Your SG&A (sales, general and administrative) costs need to be factored in. These are just a few of overhead expenditures that need to be part of your pricing strategy, KPI’s (key performance indicators), and plain business number that you need to know to manage and grow your business effectively.
You need to know your numbers and model every number you can. Making the mistake not to do this when first starting a business or keeping tabs on your KPI’s when running a mature business will be the difference between business success and failure.
3) Not Charging for All of Your Time & Costs
This seems like an ovious statement to some but most business owners will admit that they have given away a little too much of the farm at times. Hey, there is nothing wrong with giving a little extra here and there to show you care. But either way, that is not what we are talking about here. The concern are those that put a lot of quality into their work or products or stores and do not cover the cost for it, or even truly understand what their costs really are because they did not build or keep tabs on their business numbers. For example, say you run a service company and your competitors don’t do a certain standard service that you do. You can not just undercut their price to steal a job; you need to have that cost covered in your rate and advertise the fact that it comes with the price upfront. Another example, stores undermine themselves 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. Put out better service and then under price them, and your competition just has to wait a little bit for you to fall on your face so they can swoop back in.
As a business owner you need to believe that you are providing your clients worthwhile products 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 unless you are making your business bet on extremely high volumes.
4) Not Getting Paid Fast Enough
This is a sleeper and a business mistake we see people make all the time. The old cash flow issue. As long as you are actually making enough money to pay the bills, this problem can be solved, prevented or at least made to be not as bad as it could be.
First, bill customers promptly. It is very common for a business to not have the procedures or systems in place to get invoices generated and out the door in a timely fashion. Again, this would seem unlikely since that is the reason why we are doing the work- to get paid. But it is very easy for the people responsible for getting this info to the billing people to be too busy to get it there or not have enough organization to give it to them the right way.
Second, 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. If there is any way not to pay employees any more than twice a month, you should do it. Contractors always have an issue with this. If you must pay weekly, then tell them before they are hired that they will be getting the first week held back, essentially buying you a week. It will help your cash flow.
Three, credit. If your company can get a credit card, then get it. This allows for certain important 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 forty-five day customer payments, do your best to get a company line of credit. This is a must if you plan on selling to the government or doing commercial service work. These clients often have sixty to ninety day wait periods.
In Part 2 of How to Avoid 8 Common Business Mistakes we cover the other four every important mistakes entrepreneurs make with their businesses and how to avoid them.
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