Run Your Business To Run Your Business

One of the first pieces of advice I give to business owners in any field is to run your business to run your business. Don’t run your business to run your house. So many small businesses start off by pricing their offerings so the “profits” can pay the monthly household bills. We see companies do this more predominantly in the service business but it is fairly common. You end up treating your business offerings like a commodity. For example, if a electrical tradesman knows his company charges $158.00 per billable hour to do electrical service work he or she may think “I can charge $60.00 per hour and cover my hourly rate plus my health insurance and mortgage as well as my cars and household expenses and I have all of the tools I need so I can do this.” However, the business is not profitable. What most small businesses don’t think about is that tools and truck won’t last forever, how will you buy new ones once they break down? How will you advertise to expand your business? How will you pay for liability insurance or workers compensation? How about storage for material and equipment? These are but a few of the things you have to think about when setting your prices.

Your business should stand alone. It needs to be grown and be fed like a living breathing entity. It’s profits should be used to expand and to reinvest in the business not pay your salary. If you will be doing the grunt work as most service contractors start off doing, you must treat yourself as an employee who gets paid for doing the work. The costs of doing business plus a profit margin must be added to your hourly rate or to the contract. Once the job is complete all costs associated with the job are totaled and a true net profit is derived irrespective of your household needs.

The above is a very simple example of the concept but sometimes simple is the most powerful. I’ve seen more than my share of businesses go out of business because of their failure to understand the above.

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