7 Ways To Ruin Your Business
Originally published: 11.01.10 by George Hedley
Stick to fundamentals instead of resorting to these easy fixes.
The new reality of too much competition and too little profit has become an ongoing challenge. It is tempting to think you need to do things differently, but the fundamentals of business have not changed. So if your plans include any of the following, beware — these are seven sure-fire ways to fail in business.
1. Thinking staying busy is good enough. Trying to stay busy or keep your crews working is not a plan for success. Neither is jumping from one strategy to another. Running a business without a written plan is like building a house without blueprints, especially during times of economic uncertainty.
What’s your plan to stay in business and make a profit over the next three years if your workload shrinks by 25%, 50%, or more? No plans? You might as well burn your cash to keep warm.
2. Competing on price. Companies that try to do anything and everything for every available customer spread themselves too thin and can’t make any money. They are in the “yes” business: “Yes, we can do that!” When you claim to be good at everything, you’ll never get the good projects unless you are the lowest bidder by a large margin. Customers pay more for expertise or specialists. What is your company known for?
3. Hiring cheap. It is tempting to hire cheap people. But when you hire less-experienced, less-qualified, and low-paid employees, you’re kidding yourself. Cheap people make more mistakes and require more supervision. This takes you away from making your business profitable. When you spend all your time checking and helping junior people learn, you’re not spending your time where the money is made: with customers, looking for opportunities, inspiring and motivating your crews, and managing the bottom line. Better people require little or no supervision and will allow you to do more business and make more money.
4. Doing it all yourself. It is easier to do everything yourself than to teach employees how to do it for you. This management style requires you to be everywhere to make sure everything gets done perfectly. This also holds your company and people back from reaching their maximum potential. Replace yourself with checklists and systems to improve productivity so you can focus on your top business priorities.
5. Letting someone else manage your money. Most small business owners don’t know their numbers or have financial targets. They work real hard and hope their numbers work out. Or they let someone else worry about the finances. The purpose of your business is to make a profit. But with your head focused 100% on getting work done, you’ll never make any money. Get focused on your sales revenue, overhead, job costs, job profits, and company profits.
6. Getting too big, too fast, with no cash. The No. 1 reason small companies go broke is they outgrow their cash reserves. Before you take on more work than you can handle, make sure you’ve got the capital resources to do the work. You would never start a donut store without at least $250,000 in the bank. Plan to have plenty of cash on hand for three to six months of overhead, personnel, and equipment required to manage projects properly and get paid in a normal timeframe. Keep adequate reserves on hand in case payments get delayed. Most commercial contractors need a minimum of 20% of their annual volume in working capital to stay afloat.
7. Skipping a marketing and sales plan. Companies without a specific written marketing and sales plan tend to bid or do whatever comes in the door. This is a reactive approach and will not take your company where you want it to go. Successful companies have an ongoing approach to sales and methodically approach the markets and customers they want. Identify your top customer targets and make them a priority. Consider these seven factors as you chart your future in any changing economy or business climate.
Articles by George Hedley
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