Costly Small Business Mistakes

Just like how an undiagnosed chronic illness can gradually deteriorate your health over months or even years if not detected and managed, there are mistakes you can make at various stages of your business' growth that can slowly kill it if you don't watch for them.

What's interesting is that these undetected mistakes isn't just reserved for inexperienced business owners. Many large companies, including those you might think are successful because they've been around for decades, are often still making them. When you read a headline of a large company filing for bankruptcy or struggling to generate revenues, it isn't always an issues that happened during the past quarter. It is often due to years of neglect or not detecting mistakes that cumulate to the big downfall.

Here are 8 main takeaways from our mid year health check-in conversations with clients that fall into the category of "often undetected" mistakes that contribute to long-term problems. While most of our clients are in the service sector, these main takeaways do fit the bill for almost any type of industry and business.

Underestimating Project/Service Time. This is a big one and is the reason why many of our service business clients develop migraines. But this also affects most businesses. Something you estimate to take 10 hours to complete ends up taking 20 hours, which either eats into your profit margins and for our service business clients, delays new customer work. One important step is to add a 15 to 20 percent buffer into estimates. For work that ends up out of scope of the original estimate, make sure you set the expectation ahead of time for customers so they don't feel you've let them down if you have to put their out of scope work to the back of the line so you don't take time away from scheduled incoming work. For product focused companies, time becomes an issue with logistics, so make sure you build in additional margin to cover items like down time.

Not Knowing Your Company Numbers/Incorrectly Setting Prices. Notice I emphasized the word “your”. It’s 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 competitors as a starting point but you can’t base your whole strategy on it. Make sure you understand the concept of gross margins and net profit so you know how many of one product or service you need to sell in order for you to reach your profit goals.

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Not Charging for All of Your Time & Costs. This seems like a no-brainer - charging properly for your time and costs but yet many business owners I coach will admit they have given away too much at times. There is nothing wrong with giving a little extra here and there to show you care or to add value to your offering. What concerns me are those who put a lot of quality into their work or products or stores and do not cover the cost for it. As an example, say you run a service company and your competitors don’t do a certain standard service that you do. You can’t 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. 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.

Not Getting Paid Fast Enough. 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.  Here's how this breaks down:

• 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 business owners to get too busy or not be organized for this to fall off the radar.
  

• Manage the cycle. Make the quickest payment deals possible with customers and the slowest possible with vendors and suppliers (if possible and within reason).  If there is any way to setup longer accounts payable options or if there are ways to automate the collection of customer payments, your cash flow will thank you.

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 is not an alternative. Depending on the type of industry, business owners must come with procedures and systems or else chaos will ensue. Many business owners I talk to often say they are putting out fires everyday and don't feel they can get ahead. The lack of systems and processes will allow this to happen. 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.

Spending Marketing Money Just to Say You Advertise.  I have seen way too many clients spend money on "marketing" and not knowing exactly what the purpose of that marketing is other than trying to get more business. Marketing is more than just generating immediate revenues and is about laying the foundation for long-term brand building. The other wasteful part of marketing that many people make the mistake of doing, is not tracking their current and previous marketing initiatives.  Not every marketing initiative will be successful 100% of the time and adjustments will need to be made. Without proper tracking however, adjustments are made with a shot-in-the-dark approach.

Spreading Yourself Too Thin. This is probably the most common mistake made by every entrepreneur I've talked to. The key is to have awareness and act on it when you start to feel you are "wearing too many hats" in your business.  It is important that you identify your strengths and be able to see when you are not performing the duties that demand these skills. If you are the best sales person 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.  Here is one question to gauge if you're spread too thin: Did you really go into business for yourself to work 80+ hours a week?

Not Getting Help Soon Enough. 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 business. Most people who start a business do it because they are good at the technical end or the 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 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. Not making the proper investment in getting expert help will only hold you back.