As a small business owner, do you realize that there are mistakes you can make at various stages of your business’ growth that can slowly kill your business over a long period of time if you don’t watch out for them?
These mistakes occur in everyday companies, and they are not reserved for just startup entities. Many working businesses, including those you might think are “successful” because they’ve been around for 10+ years, are often still making these mistakes… 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. I’ve done my best with the listings below to give examples to prove it.
1. Underestimating Project and Service Time -
This is a big one and it pertains to service companies as well as companies that sell a product. If you do not estimate your time to perform each service in your list of services, you will find out the hard way that you are losing money on a project versus making money. The best way to estimate time is to complete the job once for yourself or watch your best employee do the task and then throw in a little fudge factor on top of it to determine a good price for the work being done. Not only should your price include the time the worker takes to complete the job, but also ensure your material costs includes everything including miscellaneous screw as well as a fee for shipping of materials, taxes and a percentage of your overhead costs. All of these costs should be captured.
2. Not Knowing Your Company Numbers & Incorrectly Setting Prices -
It’s a common mistake to use a competitor’s numbers as your pricing gauge without actually knowing why they use those numbers. Imagine the cost impact to your business if you take a competitor’s price, cut it by 10% and then use that as your base for 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? Competitors’ numbers can be used as a starting point to develop your pricing structure but you can’t base your whole strategy on it.
3. Not Charging for All of Your Time & Costs -
This may seem like a silly statement to some, but most business owners will admit they have given away too much of the farm many times. There is nothing wrong with giving a little extra here and there to show your appreciation and keep the customer happy. But this needs to be monitored carefully. It because problematic when a lot of time and effort is put into the work or products and all the costs are not captured and billed for. As an example, say you run a service company and your competitors don’t provide a certain standard of service that you do. You can’t undercut their price to win the job without evaluating all aspects of the cost to complete the job. You need to make sure that the cost is covered in your rate and advertise the fact 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 are real costs that will take a toll on the success of the company.
4. Not Getting Paid Fast Enough -
That’s right, the old cash flow issue. If you are making enough money to cover the bills to keep your doors open slow cash flow may not be a big problem. However, as a business grows management of steady cash flow is important.
Bill customers promptly. It is very common for a small 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’s the reason why we are doing the work- to get paid. But it is very easy for the people responsible for getting this information to the billing department to be too busy or become distracted with other responsibilities and delay sending bills in for processing. It is also very important to make sure that the bill is accurate before submitting to prevent delays in processing.
Manage the payment terms for Clients and vendors as well as employees. For instance, it is best to pay your employees every 2 weeks versus weekly. This helps with Cash Flow for the business. Many Contractors have an issue with this as they like to pay their laborers weekly. To improve cash flow it is advised to have a short time frame for receiving payment such as within 30 days from customers as well as asking for a deposit while negotiating longer payment terms to vendors like 60-90 days.
5. Failure to Have Solid Systems and Procedures in Place-
Too many procedures (known as “red tape”) is the reason why many people start their own business in the first place. Unfortunately, having no procedures and systems in place at all 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.
6. Spending Advertising Money Just to Say You Advertise -
As difficult as this may be, it is preferred that business owners delay advertising than to spend money on marketing without tracking the results. There is no point in having a marketing campaign if you do not put things in place that allow you to measure how well the plan is working. The other wasteful part of marketing that many people make the mistake of doing is not tracking their previously successful campaigns. Unfortunately, some business owners think that if a $400 dollar a month ad worked very well for one busy season, that it will automatically work every year after that. This is oftentimes not the case.
7. Spreading Yourself Too Thin -
This 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. The solution here is to know your strengths and to be able to see when you are not performing the duties that demand these skills. 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 operations to worry about. Think about this to help you figure out if you are spread too thin: Did you really go into business for yourself to work 80+ hours a week?
8. Not Getting Help Soon Enough -
Set goals to know when to hire people to take over tasks where you are less knowledgeable. 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 aspect of the work, or they are very good at sales. 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 take care of 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. Take the time to evaluate your business to see where the changes are needed so that you can hire smart people and grow your business.
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