When competition pressures you to cut price, don’t think you can maintain your profit level by increasing sales volume. “We’ll make it up by selling more. Lower price means more sales,” is almost always a fatal belief. Lowering price often fails to increase volume. And even if it does, trimming your profit margin on each sale usually puts you right on the edge of business failure.
If you lower your price, your competitors may go still lower. Soon your market is ‘racing to the bottom’ and nobody can make a profit. Don’t think you can beat the system. Let your competitors lower their prices. Keep your own sales up by selling harder. Show why you’re worth a fair price. Your business needs a decent profit to stay healthy.
It’s surprising how many small business owners don’t really understand cash flow. That’s why they fall behind in paying their bills.
Cash flow does not mean profits. You can have decent profits and lousy cash flow. Cash flow is the cycle of money flowing into and out of your company. You need to know how long it takes to collect money owed to you versus how much you need to pay your bills on time. Unless you have a large amount of your own working capital to take up the slack, customers who pay late force you to pay late.
To maintain a decent credit rating — and avoid a financial melt-down — it’s vital to manage your cash flow. Watch out for a shrinking bank balance, declining sales volume, and inventory build-up. Any or all of these are warning signs that money is going out faster than it’s coming in. You have to take steps to get them in balance.
There are many possibilities, depending upon your situation: increase sales, raise prices, improve collections, bill in installments, trim costs, decrease inventory, accept credit card and PayPal payments — or borrow money. Whatever you choose to do, don’t let cash flow get out of hand. Your first obligation as the boss is to keep the money flowing.
It happens often: Your computer system goes down, and your business comes to a halt. You have to get it fixed, pronto. You call the computer hardware supplier. He checks it out and tells you the computer is fine — it’s a software problem. You get hold of the guy who sold you your sophisticated software package, and he says its a hardware problem.
What to do? Well, somebody has to get you up and running, and it’s a frustrating time for you. The answer: Don’t put yourself in the way of this problem, in the first place. Have a single local supplier for hardware and software. No matter where the problem is, it’s their job to fix it.