Five Common Small Business Money Mistakes

The rate of failure amongst small businesses is high at the best of times, but in the current financial climate it is even harder for businesses to survive and even more important that businesses ensure they don’t make the same mistakes over and over again. Normally small businesses will fail because they make mistakes when it comes to financial management, control of costs or pricing. This article will outline some of the potential problems and how to avoid them:

(1) Getting your Pricing Strategy Right

Getting prices right is most likely the most crucial decision you will need to make with your business. Get them too high and you won’t shift enough units, get it too low and you wont clear enough properties. So how do you get to that elusive sweet spot? 

Clearly is you operate in an industry where prices are easily compared to competitors then you are limited to stick within a certain range. Thus if you sell stereo equipment there is only so low or so high you can sell units. You can have special offers and stress your excellent customer service but there is only so far you can stretch prices. Better that you put your time and efforts into marketing your store more enticingly than your rivals. However, if you are in an industry that is not easily compared to other people, (perhaps in design or SEO) then you can set your own prices. Most small businesses tend to go too low when they have to do this, so it is best to start off a little higher than your gut tells you and then bring down prices once you have spent some time judging the responses of prospective clients. Remember that it will always be easier to bring prices down rather than raise them.

(2) Monitoring Gross Profit

A great many small businesses don’t get the accounting right when it comes to the full and total cost of their services or products. This might mean forgetting to take into account the cost of delivery or products when pricing and calculating the gross profit on goods. Or it might mean not including the cost of software you use if you offer some kind of computer service to clients. Similarly, as a service provider any wages that you pay to employees of any kind, including their benefits, insurance and payroll taxes should be rolled up and included in your cost of services. Above all remember that its not just about monitoring the gross sales, but also correctly calculating the profitability of any sales.

(3) Being Good with Credit & Collections

A large percentage of the problems that small businesses face come down to issues of collections and credit, a lot of that can be fixed with a small business capital loan. In a large number of industries businesses are expected to purchase on credit and this requires you to put your trust and investment into their business in turn. This is obviously a serious issue and means that you need to do some proper research on firms before you invest too much in them. Perform proper credit checks and select appropriate credit limits, making clear to people what the terms of those limits are. Make sure you then stick to those terms. In addition, if in doubt, ask them to leave a deposit up front.

(4) Controlling the Budget

In any business, budgeting overheads can quickly amass and run out of control. These include everything from office supplies to insurance, temps to admin employees to utilities and rent. Prepare in advance for all these costs and draw up an annual budget. Look at ways to limit the expenses. Make sure you don’t overrun that budget every year.

(5) Spend Wisely on Infrastructure

Whatever you do, don’t skimp on anything that you need to run a thriving and successful business. This includes infrastructure, resources and personnel as well as making sure you have a good system of accounts, a decent attorney and good insurance. Make sure your IT department is up to date and that your office equipment is all safe and reliable.