Today we’ll talk about some common mistakes that small business owners make, so you can avoid making them yourself.
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’ll 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 too low
Notice I emphasized the word “your.” It’s 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 a 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 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’s 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. These are the big issues people like to tackle themselves, but are usually the ones they are the least knowledgeable about; 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 you 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!
Look for Part 6 next week.
We’ll be talking about the importance of employing an internet marketing strategy for your small business.