Common Mistakes: Business Finances
December 16, 2010
In wrapping up my 10 tips series, today’s 10 tips are all about how to make money. Please note that these tips are just based on my humble opinion and past experience:
1. Number one on the list: In order to run a successful business, you need to make at least 40 to 50% profit. For example: your time + materials, etc. is $50. You need to charge $100. This is your goal. Even if your profit is 40% you are doing well, but your goal is still 50%.
2. Be extremely careful about your overhead expenses. Simple rule. For example: Let’s say all your expenses–salary, rent, insurance, everything–are $5000 a month. You need to have at least a $15,000 job or jobs to cover that month. This might be the only way to make a profit after taxes, materials, etc.
3. Making money is also an art. As I did for many years, do not hide behind the excuse, “I am an artist, I cannot be that concerned with profit.” Become an expert in the exciting art form of making a profit.
4. I have no problem investing in my company by giving my time and energy or doing things cheaper if I think it will benefit us in the long run. But PLEASE be very careful with this practice. I have heard people say way too many times, “If you do it for me cheaper, you’ll get my friends as clients. ” This hardly ever happens and if it does, their friends want it cheaper as well. Use good judgment with this one.
5. Clients are folks like us. In order for them to pay for something, they need to first want it and second understand what they are paying for. It’s your job to make this happen. I rely heavily on visual sales. If they can see it, they will pay for it more readily.
6. Analyze each and every job from a financial point of view. What could you have done for less time or money? This is the only way to improve your profit. Gather all the players and discuss a better way.
7. Be realistic with your financial goals. You never want to price yourself out of any market. If, after a job, instead of your desired 50% you make 70% or more, you are in danger of pricing yourself out of your market. Yes folks, this is known as greed.
8. The opposite is also true. If you continue to give away your product by lowering your prices, you are in danger of going out of business. This is always a challenging balance. One that can only be confronted by understanding your true value.
9. Never and I mean EVER, give a price to your clients before completely understanding what you are committing to. Regardless of whether a potential client is pressing you to give them a price on the spot, if you are not sure, tell them you will get back to them. And, of course, do this sooner rather than later.
10. Last but not least, yes folks, at times you are going to have to make the difficult choice of turning down a job, if you will not be making a profit.
How was your year? What did you improve from prior years? What is your number one goal for your business finances in 2011?