It takes some entrepreneurs many years to learn, through trial and error, some of the
biggest financial mistakes businesses make.
biggest financial mistakes businesses make.
Hopefully, I can impart a few tips to save both budding and existing entrepreneurs the
heartache of learning these tough lessons “the hard way.” Here is a brief outline of the
mistakes you should hear now and avoid.
heartache of learning these tough lessons “the hard way.” Here is a brief outline of the
mistakes you should hear now and avoid.
1. Don’t price too low. When people start a business, they tend to price low to differentiate their offering in the market.
Instead, develop a real product or service differentiators so you can justify higher prices.
If you price low initially and then have to charge more as your operating costs grow(which they always do) down the road, you will offend and lose many of your early customers who think the increase is unfair.
If you price low initially and then have to charge more as your operating costs grow(which they always do) down the road, you will offend and lose many of your early customers who think the increase is unfair.
High prices protect your margins and help enhance your brand. Even price increases of
5-10 percent can make a significant difference to the bottom line. I believe that, at any given time, 20-30 percent of businesses in a given market cannot possibly make a profit at their current prices—they are simply too low.
5-10 percent can make a significant difference to the bottom line. I believe that, at any given time, 20-30 percent of businesses in a given market cannot possibly make a profit at their current prices—they are simply too low.
Conduct deep industry research on pricing, and then price
near the market average, or potentially a little above it. Price for
decent margins, build and protect a real brand, and
maintain your customers to build your franchise.
maintain your customers to build your franchise.
2. Don’t hire on the promise of revenue. There is a common expression: “Don’t count
your eggs before they hatch.” Often in business, we receive contracts or the assurance of revenue to come. Still, there is a significant difference between having revenue and almost having it. Getting someone to sign a contract isn’t the same as having revenue. Until revenue is actually in the bank account, you don’t have it. You must overcome the tendency to be optimistic and hire too many people before the revenue is real. This one common mistake should be its own manifesto.
your eggs before they hatch.” Often in business, we receive contracts or the assurance of revenue to come. Still, there is a significant difference between having revenue and almost having it. Getting someone to sign a contract isn’t the same as having revenue. Until revenue is actually in the bank account, you don’t have it. You must overcome the tendency to be optimistic and hire too many people before the revenue is real. This one common mistake should be its own manifesto.
3. Don’t borrow money unless you really need it. If you’re
able to get a bank loan, that’s fantastic. However, just because a bank
is willing to lend you money does not mean you should take it. The bank
is in business to collect interest so it is up to you, not the bank, to
optimize your financial performance.
Sometimes your goals and those of the bank meet somewhere
in the middle, but it is not as often as you might think. Bankers aren’t
seeking to take advantage of business people;
it’s just that their objectives and yours are very different. In general, borrow as much as
you need to grow your business. A common misconception is that the problem with credit is that there is too little available; instead, it is that people get too much of it. Borrowing money adds a huge burden to your business and stress that can often cascade into your
personal life.
it’s just that their objectives and yours are very different. In general, borrow as much as
you need to grow your business. A common misconception is that the problem with credit is that there is too little available; instead, it is that people get too much of it. Borrowing money adds a huge burden to your business and stress that can often cascade into your
personal life.
4. Don’t rely on one major source of revenue. It is best to assume that, unless you
are proactively building revenue, it is diminishing. You should look at your revenue
as if it were a portfolio; just as with your investments, you do not want all or a majority
of revenue coming from one source. Of course when you start out, you are often so busy
serving your first few customers that it is difficult to build other accounts or address
other markets. But, with time, you should build alternative sources of revenue, so when
key revenue streams die off (which they tend to), you are still growing your overall
business.
are proactively building revenue, it is diminishing. You should look at your revenue
as if it were a portfolio; just as with your investments, you do not want all or a majority
of revenue coming from one source. Of course when you start out, you are often so busy
serving your first few customers that it is difficult to build other accounts or address
other markets. But, with time, you should build alternative sources of revenue, so when
key revenue streams die off (which they tend to), you are still growing your overall
business.
5. Don’t over-hire for overhead positions. It is relatively easy to justify employees filling
certain roles at a company: People who bring in sales, develop products, or serve customers. The real challenge is when you hire “overhead” people, who cost the company
money but don’t directly sell or produce anything. It is best to keep this cost as low as
possible. Of course, the real magic is created by properly deploying overhead people
because they can help you get your business to the next level.
certain roles at a company: People who bring in sales, develop products, or serve customers. The real challenge is when you hire “overhead” people, who cost the company
money but don’t directly sell or produce anything. It is best to keep this cost as low as
possible. Of course, the real magic is created by properly deploying overhead people
because they can help you get your business to the next level.
When I was younger, I read many books on entrepreneurship
and tried to implement the lessons I learned from them. However, despite a desire to succeed, I couldn’t get to where I wanted to be, because I was not truly willing to listen and learn. You need to surround yourself with people who can help you, and these people might be (should be) people who won’t always agree with you. For this reason, all businesses, no matter the size, should have an outside Board of Directors or group to
advise the entrepreneur.
advise the entrepreneur.
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