The ‘rookie’ mistake most small businesses make

- September 19, 2015 3 MIN READ

Three years in and I’ve just realised I made a rookie error around pricing which has almost killed my business. Find out how you can avoid making these same small business mistakes.

One of the hardest things about business is that you, for the most part, are making it up as you go along. Faking it until you make it.

There is no strategy team providing the direction and the plan. No financial controller telling you what your budgets are; what you can and can’t spend. No marketing manager providing content and paying for advertising. No HR department hiring the best and firing your non-performers. There is no boss to take the verbal beating or give it to you either. You are on your own. ‘Neville no mates’.

You have to make every single decision yourself.  If things work, yahoo!If it fails – there is no-one else to blame but … you.

That is where I am at the moment – I stuffed up

When I started my business I decided I wanted to hire people just like me. My skills, my years of experience, my qualifications, my background and my work ethic. AND my salary!

I then had to work out what to charge them out at. I thought about it for a little while and did not want to be seen as greedy (God forbid) so I marked up their rate 100%. (Give or take, depending on the negotiations and how desperate I was for the work, which was inextricably linked to how green I was trying to sell work. Note to self – clients smell desperation from a mile off).

So I have been growing rapidly, especially in the last 12 months. Business has been going great, monthly revenue targets were being smashed BUT no matter how much I was bringing in the door, our overall position was not getting any better. Our growth was slowly but surely killing us.

I knew something was wrong but I could not put my finger on it. I would make excuses such as “ it is because I took a couple of months off last year to write a book” or “if we just land that client everything will be OK”. You can spot it can’t you? The curse of the eternal solopreneur optimist.

It was only recently that I did a deep dive into the numbers. Now let’s be honest, there is a reason why I’m in HR and not Finance – so this was a struggle for me. The realisation was I had been making the following small business mistakes:

  • I was not charging enough – I was too cheap, there was not enough margin built in. I was not using the rule of thirds–one-third each forwages, admin and profit.
  • I was paying too much in wages – 80% of my expenses was tied up in wages -there was no way this was sustainable. Especially when I was paying myself a pittance.
  • The work the team were doing did not require the levels of experience that I had hired – one lesson I did learn was that my team did not need 15 years’ experience to do 80% of the work, it was closer to 8-10 years.
  • I was not being paid in advance – we needed to be paid more money up front so I had the money before I needed to pay the salaries
  • I was paying my bills too early – because I wanted to be paid on time and I am a decent person we usually paid our bills early.

So do yourself a favour and avoid the small business mistakes I made of not knowing my numbers. Make sure you price correctly and most importantly don’t be afraid to make drastic changes. I now have a sense of clarity and I know that I have made some painful but necessary changes to turn my business around.

But at least I now know what to do!