Small Business Moving Forward With $$$'s
As a former start-up entrepreneur, one of the things I quickly learned is to price
my products and services to obtain a net profit that will allow for business growth. A typical business targets a net profit in the range of 7-12%, but this number varies depending upon the type of business. I aggressively set mine at 15%. In starting up a business, it is too easy to fall into the trap of setting your price below that of your competitors so you can generate more business. This may be okay for a short period of time, but over the long term, you will find this method is not productive. You obtain contracts, pay salaries, vendors, overhead, but at the end of the day, you just don't have enough capital to buy that extra piece of equipment, start a marketing campaign, hire an additional sales person to increase your growth, or coast through a month of reduced sales. I have experienced this cycle firsthand, and it is counterproductive.The challenge is to price your products and services to what the market can bear and be able to generate a reasonable net profit that will allow for business growth. If you feel the pressure to reduce your pricing, think of alternative and creative ways to add value while maintaining your pricing. Some ideas to maintain pricing would be to provide something of value to your customer additional customer service, an extended warranty, vendor sample products, etc. Maybe you have a person in-house who is already covered in overhead expense, but can be offered to a customer to solve a problem such as training. Also, to increase your sales at a minimal cost to you, be sure to take advantage of volume discounts. Sometimes, simple measures like these are all you need to employ.
Of course, factoring your receivables is always an option to increase your cash flow, and this is where Allied can help. Several benefits of factoring are to: obtain an instant source of working capital/cash flow, finance rapid sales growth, fulfill payroll and tax obligations, purchase necessary equipment or inventory, take advantage of trade discounts, outsource accounts receivable management, and eliminate internal collection and accounting costs. These benefits obtained with extra working capital can be very advantageous for a small business. It certainly was for mine.
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