Five Small Business
Mistakes to Avoid in 2010 … and Beyond
By Gene Siciliano
The past couple of
years have been an especially challenging time for most business
owners as they’ve struggled to maintain sales and profitability in
the face of one of the worst economic downturns in our nation’s
history. As a result, most business owners were only too glad to say
“Goodbye!” to the decade of the 2000s.
As you make plans
for growing your business in the decade ahead, first make sure you
aren’t carrying any old baggage along with you. Here are five common
mistakes that were made by many small business owners during the
economic downturn. If any look familiar to you, resolve to correct
them now so you can begin the new decade with a fresh start:
1. Have a sale on
your highest-volume, lowest-margin products.
After all, you know you will sell a lot of product this way, right? While
this might be a great way to boost your sales, it will also lower
your gross profit, as well as the value perception of your product.
If you don’t know your gross profit margins by product, you could be
doing this without even knowing it.
This strategy is
the exact opposite of what you should do, which is to focus your
sales efforts on your high-margin products and offer
something extra to customers that doesn’t cost you a lot to provide,
like free shipping or express order processing. The key is to devise
a discounting strategy that doesn’t undermine your pricing structure
and condition your customers to expect lower prices in the future.
2. Hesitate to
borrow from your bank credit line to finance your cash flow needs. Sometimes, owners are afraid to tap their lines of
credit for fear the bank will make demands they don’t want to honor.
However, financing cash flow is exactly what your credit line is
there for, and this may be the perfect time to use it.
wisely, you can help make sure your management team spends its time
doing things that make your business better, rather than struggling
with unnecessary cash flow issues. Just make sure your borrowing
needs are temporary and your business will be able to pay the money
back when things pick up again. Note: Using a credit line to finance
losses is a bad idea unless it buys you extra time to turn the
losses around and you have an active program in place to do
As an aside, there
are banks out there that are willing to lend money today,
despite what you might hear on the news or read in the paper. Many
community banks, in particular, are looking for businesses with good
management, solid business plans and strong financials that want to
3. Don’t press your
customers for payment of overdue balances.
Small business owners can be hesitant to pursue collection of
past-due accounts receivable for fear that they’ll alienate
customers or make them angry. However, avoiding active collection
efforts so you don’t make customers mad is taking responsibility for
their problems at the expense of your company.
This comes down to
a balancing act between your good customers who may be experiencing
temporary cash flow challenges and your traditionally slow-paying
customers whom you tolerate in good times but can’t afford in bad
times. Use this opportunity to collect as much as you can from the
deadbeats and then drop them—so you can focus your energy on serving
your good customers better.
4. Neglect getting
regular reports on cash flow.
Common complaints are that “it’s too much work getting these from
accounting” and “they’re too hard to read anyway.” However,
neglecting to regularly receive and scrutinize accounts receivable
and accounts payable aging reports, bank account reconciliations and
short-term cash forecasts is asking for trouble.
These reports will
tell you where your cash is, where it’s going, and where you need to
put effort into making changes—speeding up collections and/or
slowing down payments, for example. This is essential information in
good times, but in bad times it’s absolutely critical.
I was recently
interviewed on my friend Jim Blasingame’s small business radio
program, The Small Business Advocate Show, and this is what he had
to say about neglecting cash flow reports: “It’s like driving the
wrong way down a one-way street at night in the fog.” I can’t
describe it any better than that! Jim added that, in his opinion,
the small business failure rate in this country could be cut in half
if all owners regularly received and reviewed cash flow reports.
5. Give your
customers cut-rate prices when they ask for them (and they will!).
Your customers want to reduce their costs, of course, but often
without doing anything differently themselves. They’d rather you
just cut your prices. But if you agree, you will be funding their
inability to manage their business properly, to the detriment of
your business. Instead, give your customers tools and techniques to
enable them to better pass on their costs to their customers by
selling value rather than price.
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