Running a business is tough. When you put out your shingle that says open for business you take on at least 12 jobs at once including CEO, CFO, Social media manager and Secretary, any of which could cause you to go out of business quickly if you make a significant mistake. Below are a few of the costliest mistakes I’ve seen repeatedly in my nearly two decades of running a professional service business. Hopefully, reviewing them will reduce your chances of making these kinds of errors. Carefully read the 10 most costly mistakes for small business owners, it will help you stay on the right path.
- Poor Cash Flow Management
Cash really is KING. The most common mistake in business in not staying on top of cash flow. If you do not carefully manage your cash, you could soon be out of business, even if business is booming. Make sure that payment schedules are clear and agreed upon, and enforce them, a slipping payment schedule is a sign of a breakdown of some kind – even if it’s only a mail delivery problem. You need to track your accounts receivable turnover ratio, or how fast money is received once an invoice is issued to a customer. You also need to accept digital payments in all forms. Push for EFT or Electronic Funds Transfer and Wire payments. Offer discounts for early payments such as 2% for Net 10 payments. Never offer discounts for Net 30 payments, that is a business standard. When possible demand at least a one-third deposit. Start your collections process on Day 31 when payment has not been received, and don’t hesitate to make a call to track down your funds.
- Poor Project Management
There’s external and internal project management. External is about the client management and internal management is about how you need to mange and communicate with your team. You must clarify exactly what is expected, when it will be delivered to clients. It will serve you well to go out of your way to clarify in writing a project plan after the contract is signed. Find out what customers expect, and to clarify any deliverables you need from them to achieving their goals. Be sure clarify your own deliverables, and by when you can fulfill them. A common mistake is not managing scope creep which often a challenge in professional service businesses. You can always refer the client to the project plan to reign them in. When organizing your team, use regular staff meetings to communicate deadlines and assign roles. It’s also helpful to use project management software such as Slack and Basecamp to track customer contact and version control on all work documents.
- Confusing Enthusiasm and Capacity
Often small business owners and especially solopreneurs greatly overestimate their capacity and underestimate the time they will need to complete a project. You must track time carefully in a business, so that you are making a profit on your work, and not working yourself into the ground. You must set aside time to work on your business, which is the strategy piece that keeps the business strong. And you must work in their business to deliver your product or service to customers. It’s easy to spend too much time working in the business, a not work on securing the next customer.
- Constantly Overworking
You are not a robot. You can’t do work 60 hr/week, 52 weeks a year. You need to rest, reflect, rejuvenate, build your skills and have a life. You need this so that you can have the energy to manage your team, sell and negotiate, gather customer feedback and respond to customer and employee concerns. Remember, your family should be your #1 customer, otherwise your success or failure could cost you your family and put you on a lonely road.
- Lowballing Your Prices
Many business owners believe it’s best to jump in, start getting customers for a low ball price, and then worry about raising prices later. This is often disastrous – customers become angry, and don’t see the value when you do this. It’s much better to offer a fair price the first time. You need to charge a price that is fair to you and your customer. You don’t work for free, and a good client will respect your rate even though they’ll always try to beat you up on price. Even if you want to offer a substantial discount for early adapters, letting people know what the full price will be will build trust.
- Not Hiring the Right Help
Sometimes when you are rolling in business and you need help, you grab the next warm body that walks by. This is a mistake, yet it’s a very common error among eager business owners who are focused on delivering on time and on budget to the customer.Take the time to develop a hiring strategy, write comprehensive job descriptions, and know how you will source job candidates, develop interview questions and determine how you will conduct interviews phone, in person, personality testing etc. Give yourself time to look at multiple candidates, to get the best one. It’s expensive to hire and retrain even entry-level employees.
- Charging Based on What the Competition Charges
If you focus on value and not price you’ll always win. Marketing pros know the importance of differentiating. Avoid the common mistake of pricing and packaging your services just like you’ve seen your competitors do. If you know your numbers and profit margins you know what your price needs to be. Develop custom proposals to fit the needs of your customers, the experience you want them to enjoy, and the benefits that highlight your brand promise and your best work. That practice will lead you to naturally-differentiating pricing based on value to the customer.
- Caring About The Client’s Outcome More Than The Client Does
This mistake is a killer for many service businesses. Your standards are likely going to be higher than your clients’ – that’s what makes you a professional. Before you jump in with a new client, do yourself a big favor. Find out what results the client truly cares about. Make it clear what they have to do to accomplish their goals. Your customer has to deal with internal politics, which could derail your project. Make sure there is buy-in above your client, for example another division from the company could have a different agenda and not provide needed information. Make sure your objectives and deliverables are clear, and that the client signs off so that you can deliver what you promised. Don’t make internal adoption and execution your issue. You just want to get paid for your work.
- Charging By The Hour
First of all, no one can sell time. Trading dollars for hours is a job. Customers don’t pay for time; they pay for value. You’ll have to do some work to figure out how to charge for value. Try to figure out success will mean to your client’s bottom-line. Charging for value greatly increases the chance that both you and your customers will be delighted with your exchanges. It helps avoid misunderstanding by constructing a clear deal, based on explicit promises from both sides. Charging for value sets you up to clarify not only what you will deliver and by when, but also what the customer will do to enjoy the full desired benefits. Often the customer’s part of the deal goes beyond a payment schedule.Charging for value also sets you up to keep current with each client, and to explore whether and when additional value may be desired – before you begin to deliver it.
- Not Keeping Your Sales Pipeline Filled
Not having a specific sales process, may be the most, costly business mistake of all. You must have a specific process for lead generation and cultivation in your business. Prospecting can be a difficult and, for many people, daunting task. Not everyone likes doing it, but it’s the lifeblood of your business. Prospecting is the key to selling. You must work at getting leads consistently, so you can close sales consistently. You can try an email newsletter, blogging, social media, cold calling, Direct mail, reactivation calls, free webinars, Live videos Q&As, networking events, asking for referrals, trade shows, conferences, door to door sales, etc. Just imagine how many sales you can make if you commit to prospecting every day!
These 10 issues will likely creep up in your business. It’s best that you recognize them going in so that you can build a strategy to avoid them. Try to stop problems before they start by using this advice to manage your company. Leveraging other people’s hard learned lessons can be most valuable in business.
Let me know if you know any other mistakes you want to share.
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