Is Your Business Bleeding Cash?

Just like Fight Club*, there is a first rule, and the first rule of business is to stay in business. And one key way to staying in business is to not bleed money. There are a lot of different ways cash can leak out of a business…obvious things like paying too much for cell phone plans, leasing a fancy-ass car when something serviceable and cheaper would be better, expensive office décor, or signing up for high-priced services and subscriptions that aren’t worth it. We all are aware of those, but here are 5 ways a business can hemorrhage cash and what every owner should do to avoid bleeding out.

1. Bad Pricing

It’s surprising to me how many owners don’t manage their pricing well. This applies to every business type, whether you are product or service based.

1. In product based businesses, I often see owners calculate what they paid for a product and mark it up 200% and call it good. They’re figuring that 200% covers everything else it costs to run the business. What they need to do is sit down with their product and list out all the costs associated with getting that product out the door. This can be packaging, labels, freight, customs, and more. It’s called Cost of Goods Sold, and this number is key to good business management in a product based business.

2. Labor costs are often underpriced. Start-ups (and established businesses) sometimes overlook covering their fully loaded payroll costs. Say you pay your guys $30 an hour and you double that price to your client thinking it’s all good. Well, you need to add another $2.30 an hour for federal taxes, 1–6% for state unemployment (.30 — $1.80 per hour), another .25–7.00 an hour for workman’s comp, plus whatever other employment taxes your state may have. So that $30 an hour wage is actually costing you anywhere from $32.85 to $41.10 an hour. That adds up fast in an 8 hour day. And don’t forget whatever benefits you provide — those should be broken down to an hourly cost as well.

3. Service businesses seem pretty straightforward on the surface, but one ignored cost to the owner is time. Time spent setting up appointments and managing e-mails, answering questions, travel time, plus time staying current in your field. Your hourly rate or package price has to cover all that. My recommendation to those in the service industry is strive to be the best — at what you do and in customer service. Then charge like a boss. Women in particular tend to undercharge…ladies…stop it now! Charge what you are worth!

2. Trial & Trial & Error

The old ‘I’ll-figure-it-out-myself syndrome’…I see it often and have been guilty of it myself more than once. This is the one where you decide that you can do it yourself and don’t need no stinkin’ professional. I can’t lie…sometimes it works out fine, but so often you go ahead and research and try it and fail and google and fail and ask around and try again and fail. Whew! Mistakes cost money.

One area I recommend you get help with is setting up your bookkeeping and financial systems, and get some training on managing it.

Another area is your website, but only if it’s going to be complicated with plug-ins and shopping and extra things that you absolutely need.

3. Inefficiencies

I’m not going to lie folks, this one right here drives me abso-frikkin-lutely nuts, because there’s a thousand ways that inefficiencies can bleed money from your operation. Here’s a few from the Favorite Hits List:

1. Outdated equipment or equipment issues that nobody takes care of — this slows you down.

2. Poor Work Patterns and workflow — find the easiest and fastest way to work.

3. Can’t find passwords — keep them in one spot, current and in a safe place.

4. Refusal to automate, upgrade, update and use apps.

— ‘nuff said.

4. Bad Accounting

So this one just makes me sad. I kind of picture this woman on a dock, struggling to hold back tears as she waves her hankie at a boat with her money pulling away. And that’s what bad accounting will get you…boatloads of money just…gone. I’m going to give you a couple of examples and the I implore you to pay attention to this. Learn it, breathe it, own it. Businesses go under because of this, I’ve seen it and it’s ugly.

1. Record expenses and monitor expenses every month, at the very least.

2. Dive into bank and credit cards weekly, at least. Fraud happens.

3. Late fees and penalties — these can break your back.

There’s much more on bad accounting, but I’ll put it all in another blog. Promise.

5. Bad Marketing Decisions

Overwheming, isn’t it? All that marketing info and tech speak. There’s so much noise out there on this subject that it’s really hard to know where to start. Let me just name a few things that you should avoid.

1. SEO blah blah blah - Know what you’re getting on this one, peeps. Research before you sign up for any SEO programs.

2. Old School Advertising — Beware of signing up for expensive monthly plans. ROI is typically not there.

3. Non-Measurable Marketing Programs — Avoid fancy marketing that doesn’t allow you to measure engagement and sales.

And the Bonus Round: Here’s a few extra just for funzies:

1. Legal fees for start-ups — you don’t need a fancy-schmancy attorney to start your business unless you have partners or investors. DIY baby!

2. Joining too many networking and business groups — costs add up and going to all those events takes your focus from your business.

3. Buying e-mail lists - don’t do it. Just don’t.

4. Making… and then keeping, a bad hire. Once you realize the mistake, separate.

I hope those are helpful, and if you have questions or just want to talk about business stuff, shoot me an e-mail or DM me!

*The first rule of fight club is don’t talk about fight club…just in case you didn’t know.