Money is a common cause of problems. In fact, it is often labeled as the reason for many divorces. That said, it is easy to understand why money can often be a problem in business, if it is not managed properly.
One area that is often mismanaged is the pricing of goods and services. As the above video addresses, when products are priced too high, the number of sales go down. However, when prices are too low, the number of sales goes up, but the business loses money.
To solve this problem, retail businesses should focus their marketing efforts to create a sense of urgency. By doing this, they can charge close to the full price of the item.
Non-retail businesses on the other hand often short themselves by pricing their services too low. It is better to start with a higher price because prices can always be lowered; however, it is much harder to raise them.
Secondly, businesses often make the mistake of not accounting for the full cost of goods and services. For instance, an individual product has a lot of costs associated with it such as the shipping and the possibility of damages and unsalable returns. Services also have additional expenses including the costs associated with employees, which consist of payroll taxes, insurance, and benefits.
All these extra costs help determine sales volume and gross profit. When these factors are down, the business needs to find out why and make some changes.
A third financial area that is difficult for businesses is credits and collections. A lot of businesses allow customers to buy on credit, and they bill them after a good is delivered or a service is performed. Unfortunately for a business, this could mean a long waiting period before it gets paid.
To cut down on the waiting period, some businesses ask for a deposit up front. Regardless of how a business handles the payments, it needs to have a clear set of credit terms that customers can abide by.
Budgets are a fourth area that businesses tend to struggle with. There are always overhead costs such as rent, utilities, and supplies, but all these areas can be controlled. Businesses should set realistic budgets and see how their actual spending matches their predetermined budget. From this, they can see which areas are pushing them over the top.
Another common financial area that is problematic for businesses is that they try to do everything on their own. Entrepreneurs are used to filling multiple shoes, but there are some tasks that should be left to professionals. For instance, services involving accounting, IT, tax, and legal matters are actually worth the additional expenses if the business managers are not skilled in these areas. As long as they are included in the budget, these areas can be managed outside the office.
Are you making sure your business is avoiding these financial mistakes?