Collecting from Late-Paying Clients

Q. What’s the best way to deal with non-paying or late-paying clients?
I’d like to try to avoid lawsuits, and I’d also like to maintain a positive relationship.

A. Here are a few ways to deal with late paying clients:

1. Set up an account on Paypal or Square, or a credit card merchant account, so that they can pay when the service is performed. Or even earlier, e.g., when they book your services.

2. Get a prepayment or a deposit.

3. If you invoice, specify your terms in writing.

4. Call as soon as a payment is overdue. If your term is “net 30” and they haven’t paid by day 31, give them a reminder call. “We didn’t receive your payment. When can I expect that? Can I get a credit card number to handle that?” The one who asks gets paid. The longer you let it go, the harder it is to get paid.

5. Ask if there were any difficulties. Were they unhappy with your work? Was something not complete? How could that be corrected?

If they don’t pay, here’s a sequence a steps you should take:

1st.  Have somebody else besides yourself call, who is friendly but firm, and will not be sidetracked by sad stories and excuses.

2nd. Send a letter.

3rd. Send an attorney letter.

4th. For an ongoing customer, say, “We will be glad to continue our work for you when we receive payment.”

5th. Take them to small claims court. Much easier than filing a lawsuit. Getting a summons to appear in court shakes many old payments loose.

“Maintaining a positive relationship” with somebody who is purposefully withholding money they owe you should not deter you from taking forceful steps.

On the other hand, if they don’t have any money, or you can see you’re not likely to get paid, and it’s not a huge sum, then let it go. Don’t make your life about this issue.

But don’t do business with them again.

Crowdfunding for a business venture

Crowdfunding is the latest rage, but before seeking to use it for a business venture, make sure you have answered these questions.

Q. Have you used crowdfunding sites to raise money for a business project. Asked on LinkedIn by Brandon Schaefer

I see potential problems with doing this. A business project is meant to make a profit, and earn a return for the investors. If the investors are crowdfunders, how do they ever benefit other than feeling good about supporting a business they like?

I see four ways to view such a contribution:

1. It’s a gift. I don’t expect to get it back. I’m giving it to you because I believe in what you’re doing.

2. It’s a loan, with no recourse. If you do well, I’d like my money back, with interest. If you go belly up, so be it.

3. It’s prepayment for services. I’ll put money into your business in the expectation that when you get going, you’ll provide me with product or services of comparable value. Perhaps a plaque with my name on one of your cafe tables.

4. It’s an equity investment. I expect to own a piece of your business, have a share of the profits as dividends, and to benefit on the upside if you sell it later at a premium. I want oversight on how you’re running the business.

If I’m a crowdfunder for you, several things would really irritate me, perhaps to the point of lawsuits:

1. You squander the money, just out of lousy planning and management

2. You divert the money to other uses, such as fancy offices or expensive travel

3. You make a bundle and ignore me. With my $1k investment (among others) you grow your company and Google buys you out, making you rich, then you won’t take my phone calls.

How are these potential situations handled on crowdfunding sites? What are the obligations of the person receiving the funds? What are the rights and recourse of the contributors? This is why we have contracts. The crowdfunding deals I’ve heard of sound kind of loosey goosey.  Fuzzy agreements now = lawsuits later.

If it’s for a good cause–say, you’re raising money to go plant trees to restore the rain forest–then I view my contribution as a gift, and expect nothing back.

But if I’m investing in a business that expects to make a profit, then I want some contractual accountability.

So when you look at Crowdfunding sites, see how they address all these questions and others

 

How to Build Consistent Revenue and Cash Flow

12 ways to build consistent revenue and cash flow

Question on LinkedIn by Sandy McMahon

A: Revenue and cash flow inconsistent? How many of these will work for you?

  • Counter-cyclical revenue sources. If you have a down season, what could you add that would bring in revenue at that time? Could you offer sales or specials to incentivize customers to buy during the off season?
  • Different size jobs or customers. Suppose you have big projects with big gaps between them. Could you add some medium-size or small jobs to fill in the gaps between the large ones? Assign these to your junior staffers.
  • Make sure you’re billing for all the work you do, billing on time, and collecting what’s due you. I can’t believe how often I discover that cash-poor clients are billing only after 30 days . . . and not collecting for 60!
  • Revolving line of credit. Are your revenue cycles predictable or not? If predictable–say, you know that every Q1 and Q3 are slower–then you need to manage your Q2 and Q4 cash to bridge the slow periods. Or have a revolving line of credit that you draw down then repay as the cycle turns up.
  • Fatten up, then hibernate. If you are a sole consultant, and you suffer from a couple of slow months every year, then do your cash flow planning based on a 10-month year. Make sure those 10 months give you what you need for 12 months. Then take two months vacation each year! Better than stewing about no business. Don’t tell me your clients can’t get along without you. They’re not doing any work during the holiday period either.
  • Change the way you price. Change from hourly billing to monthly, or even annual rates. Most of my clients pay us a set monthly fee, and this greatly eases my cash flow worries.
  • Raise your prices. If you have cash gaps, you are under-pricing. Your clients want you to be available when they need you. This requires that you stay healthy even when they don’t need you. That overhead needs to be built into your pricing.

Wildly fluctuating revenue? If your cash cycles are just not very predictable, then what? The less certainty in cash flow…

  • …The bigger cash cushion you need. You need enough cash + line of credit to carry you through 2x your biggest swings–from peak to trough, and from peak to peak.
  • …The lower your overhead should be. Unpredictable, highly-variable businesses need to be low overhead, high margin. You need fast payback capital investments. Nimble and flexible. This includes your work force. They’ve got to know that they work only when there’s work to be done.
  • Innovate! How can you reinvent your business to get out of such a stress-inducing model?

Bad marketing = cash crunch. Inconsistent revenue may follow from mediocre marketing. You may need to tune up your marketing. For example:

  • You need better customers. You’re going after the wrong ones. You want customers that give you the level of business you need, pay your price, pay you on time, and are so happy they refer others to you. This requires knowing the value of what you sell, and being able to communicate this to those who value it. And of course delivering it well.
  • Cross-sell and up-sell to your customers, and ask for more business. Have a higher-price premium offering.
  • Change your offering so that it commands a higher price point. Make sure you’re not perceived as a commodity, and thus subject to being bid down.
  • Offer add-on services that bring in a steady revenue stream. For example, a maintenance or management contract after the initial job.

Growth sucks up your cash. Everything I said assumes a steady-state business. If your company is growing, all these dynamics are exacerbated. Growing companies are often strapped for cash, despite increasing sales, due to the gap between sales, paying cost of goods sold, and collections. In addition to smoother cash flow, you need an infusion of permanent working capital to cover the cost of your growth until it can be recouped through increased profit.

What other good ideas would you add to my list? Add ’em in the comments below.

Finance Without Collateral

To borrow money without collateral, you need strong, trusting relationships. And you have a strong obligation to repay.

Q. How can I finance a small business project without collateral?  Asked on High Table by Shehzad Aman

A. Here are a few ways to finance without collateral.

1. Your savings. You should be as demanding on yourself as a banker would be to demonstrate the viability of your proposal.

2. Your family or friends. They may loan to you without collateral because they know and trust you. Your obligation to repay is even stronger than it is with a bank.

3. Crowd funding. It’s the latest rage. I have read a lot about it, but I’m not sure how successful people have been raising capital this way. Who can get it, for what amounts and purposes? What promises do they have to make?

4. Your own creditworthiness. If you have a good credit score and good relationship with your bank, you should  be able to get a non-recourse loan for several thousand dollars.

5. Charging it on your credit cards–the all-time worst way to fund a business, yet one that is used all the time.

To borrow money without collateral, you need strong and trusting relationships with people who have money.

Some may suggest venture capital. But VCs aren’t interested in “small.”

There may be business development grant or loan from a foundation or government agency, but this is not something to count on. None of my clients have ever gotten enough capital this way to start a business.

Perhaps you are being too restrictive by saying “with no collateral.” Ask yourself what kind of collateral you have. For example, if you purchase equipment, the equipment itself serves as collateral.

*   *   *   *

Shehzad, I answered this question as if you were in the U.S. But it looks like you are in India. I know nothing about the small business banking sector there. I suspect that personal relationships are even more important. But there may also be business development loans from some agency that wouldn’t be available here.

 

Raising Seed Capital or Licensing a Formula

The farther along you can develop your idea, the easier it will be to attract interest from potential backers or licensees, and the more control you’ll be able to maintain.

Question on HighTable.com from Amar S. How do we find partners to help fund and license our concept? I am part of a two physician team that has a formula for an appetite-suppressing meal replacement bar. The concept allows us to take any soup and turn it into a bar. Our initial focus will be to produce vegan/vegetarian, allergy-free, low carb, low fat, high protein and kosher bars. We have a great idea, but we are having trouble finding established companies to partner with for development.

My answer. Amar, the farther along you can develop your idea, the easier it will be to attract interest from potential backers or licensees, and the more control you’ll be able to maintain. Very few established companies are interested in helping you develop such a product from an untested idea.

You say you have a formula, a concept. If I were an investor, I would be more interested if you had produced some initial batches, conducted tests with them, and tried them out with the kinds of people who would be your consumers. What did they like and not like? If it’s for weight loss, did they have any results? What about packaging and shelf life?

As a potential investor, I would want to see what processes you used, what equipment, how it would scale up, what sets it apart from similar products. How would the production costs pencil out against the likely retail price point, after backing out all the distribution channel costs? Does it require testing and approval from any regulatory agencies? How are the processes and products protectable? Are there pieces you can patent?

Where and how would it be sold? Would it be a grocery item? Health food or natural food stores? Sold online? How would it be marketed initially?

You’ve been in a service and consulting business. Now you’re looking at a manufacturing and distribution business. It takes a different mindset and skill set. You might say, “We just want to sell or license the concept to a big player, then wash our hands of it.” But even if you find a taker, you’ll realize the least return from this approach. You’ll lose control, and somebody else will make most of the money.

I’d look for three things first:

1. Raise some seed capital to do the things I outlined above. At the earliest stage, this money usually comes from your savings, family, or a true believer. (For example, a client of mine who produces gluten-free products has been approached by a VC who has celiac disease. BUT, she has been in operation for several years, and has a track record of growth.)

2. Partner with a person experienced in taking such products to market, with operational, marketing, fund raising experience. Not that he/she is an expert in all three areas, but has been there in the trenches

3. Find an attorney who can advise you how to protect your formulations and processes through patents, trademarks, etc.

How to Price Your Services

How much money do you leave on the table by the way you price your work?

For consultants, contractors, and other professionals

How much money do you leave on the table? . . . how many jobs do you lose? . . . by the way you price your work?

This is a regular issue of discussion at our Business Group meetings. I’ve pulled together notes from several such discussions.

I would love your questions and feedback on this topic.

Hourly or fixed fee?

You should never work on a fixed fee for a poorly-defined project or one of unknown scope.

When to use an hourly rate (e.g., time and materials):

– At the beginning of a job, before you have a handle on it

– For parts of the job that inherently cannot be defined (e.g., for landscapers, “rocks and roots;” for remodelers, dry rot; for bookkeepers and programmers, repairing the goofy things your predecessor did).

An hourly rate with a cap on fees acts as a fixed price where you accept the downside risk but have no upside opportunity.

When to accept fixed fee basis, monthly fee or retainer:

– For a routine continuing task, where the scope is known and agreed upon

– For a definable new task

– If your fee is fat enough to cover contingencies.

Define the scope of the job. Answer these questions for each job: Exactly what will you do? What are the deliverables? What is not included? What do you charge for extras?

Specify the add-on services you can make available (at an extra price, of course).

Here are other terms of your client agreement that affect pricing and billing:

– Duration of agreement or contract.

– Payment terms. How much up-front deposit? When you will invoice and how soon they must pay. (Can you get payment upon completion of service? Do you accept payment by credit card?)

– Their responsibilities and timing. They must do what and by when?

– With whom you will interface and how?

– How the contract can be terminated by either party?

– When do you have the right to raise your rates?

Monthly Retainers?

Sometimes the term “retainer” scares clients. It looks to them like an ongoing contractual commitment. (Have you seen the computer commercial where the consultant says with a sheepish grin, “We are contractually entangled”?) Instead, ask for a standard monthly commitment. “For a business your size, for your needs, you probably need about ________hours per month.”

Specify your regular scope of work under the retainer. “For this many hours we can probably handle the following tasks: ______.”
These tasks probably fall into the following categories:

1. Right now problems to be solved, work to be done. This is what you’re being hired to do.

2. Ongoing follow-up and support to ensure implementation.

3. Proactive projects to be handled when other requirements are completed for the time being. (I.e., non-time-sensitive things you do when urgent tasks are handled so that they don’t think you are twiddling your thumbs and billing them.)

List and describe all these carefully, so that you will know when some request falls outside the agreed-upon scope.

Specify extra charges. For what things will the billing level be increased? Some examples:

– Tasks outside the specified scope; special projects

– Handling crises, emergencies

– Delays and extra work caused by the client not meeting their agreements with you (!!)

– Rush work that requires you (or your employees) to work evenings or weekends or shift around scheduled work with other clients

Your monthly billing must include time spent preparing reports, phone calls, attending periodic meetings and reviews, managing the project, and doing research.

Different billing rates?

You may be tempted to charge different rates for:

a) Working a greater number of hours. Suppose your hourly rate is $150 for a small number of hours. For a larger number of hours, you may legitimately give a discount because your cost of marketing and administration is reduced as a percentage of the billing on that job. But it’s also fine to keep it at $150.

b) Different tasks, e.g. tasks that require a different level of skills. For example, you may think you should charge a lower rate when you are doing lower-skilled tasks. But if so, you should also charge a much higher rate when you do your highest-skilled tasks. Often, thinking things through and coming up with excellent solutions to problems is the highest value you bring. Your rate should be $500 or $1,000 per hour at such times.

If you are tempted to charge a lower rate for lower-skilled parts of the work, then it’s time to consider hiring or assigning a lower-skilled person to do that part and pay them half to a third of what you bill them out for.

If the entire job seems worthy of only a lower rate, then it is probably not a good job for you.

Should you bill for thinking? What if you wake up at 3:00am with the million-dollar solution to your client’s problem? How much do you bill them? This could be the most valuable thing you do for them. (Make sure you turn the light on and write it down!) This shows the difficulty of billing by the hour. What would you say on your invoice, “Million dollar idea: 10 seconds”?

Should you bill for research? Some consultants say, “I’m the expert; they expect me to already know all this stuff, so how can I bill them for researching things for their job?” I question this belief. Are they hiring you because you already know everything, or for your ability to efficiently find out what they need to know? Ask your attorney: do they bill you for the time they spend researching case law in all those books that line their office walls? You betcha! Obviously you must know the basics of your profession, but beyond that, bill for research. You might tell your client up-front about how much time you expect to spend on research. A rule of thumb: the more you are expected to know without looking it up, the higher your rate should be.

Should you bill for travel time? To keep your business profitable, you have two choices: a) bill for travel time (yours and your employees’), or b) set rates high enough to incorporate unbilled travel time. Options:

– Don’t bill for travel time to nearby clients: only when travel miles are greater than, say, 30 minutes.

– Don’t bill for travel time if you spend more than _____ hours per day on site.

– Have clients come to you. Charge a lower rate if they come to you.

– Conduct some meetings via phone or do some work online.

What’s your hourly rate?

What is the proper pay rate for a lead consultant? One consultant found that competitors charge $180–$210 per hour. $160 seemed too low: she wouldn’t be taken seriously. Perhaps $185 is right. Recommendation to her from other consultants: “Make the first digit 1 rather than 2.”

Other ways of looking at pricing:

– Value-added pricing approach. What is this job worth to them? What does it cost them not to have it done? Set your price based on this.

– What do the big guys charge? If the client doesn’t hire you, how much will they have to pay someone else for work of equal quality? If your rate is too much below this, they probably won’t hire you, because you don’t seem credible.

Negotiate your rate?

Should you leave som­e negotiating room on the price? Some say “yes,” but I am against it. Don’t cut prices unless you also cut scope. However, you might say,

– “I can reduce the hourly rate by 10% if you commit to using us for at least ______ hours per month.”

– “The rate for hiring a Principal is $185, and our lead consultant bills at $165.”

– Reduce the scope: “For the price you want to pay, here’s what we can provide.”

– Or resell them on value. Why are you worth your rate?

Billing vs. pay rates

Profitable companies bill out their skilled employees for (at least) three times their pay rate. Thus if you pay an employee $50 per hour, bill them for $150. If you can only bill $120, then you should pay no more than $40.

For an independent subcontractor, this ratio should be at least 2 to 1.

Why should you get 2/3 of the money, you filthy capitalist pig? Here’s why:

– To contribute to your direct employees’ benefits, their pay for unbillable hours, their pay for work that goes over budget

– Overhead. Contribution to facilities cost, insurance, administration, marketing, etc.

– You must pay employees (and even subs) on time, regardless of when you collect the receivable. You are the banker.

– Marketing cost. You brought in the job. You must recoup the cost of time spent on all the jobs you didn’t get. For example, if you get one out of three of the jobs you bid on, then the one you get must cover the bidding cost of the two you didn’t get.

– Management cost. You may have to devote some unbillable time to managing their work.

– Entrepreneurial risk. You take the risk for business reverses and interruptions, the risk of not getting paid by the client, the liability for lawsuits, the obligation for leases, etc.

– Profit from operations. You are supposed to make money on every aspect of your business.

– Return on your investment. You put the company together and built it up. Your organizational skill, teambuilding, training, and creativity are essential and deserve an ongoing return.

All this is in addition to the amount you pay yourself for time spent on the job.

I assert that if you bill for less than twice what you pay your people, you actually lose money out of your pocket for each hour they work.

At the very least, this practice is a sign that your business model needs tuning: you are estimating poorly, underpricing, overpaying, or going after the wrong kinds of jobs or customers.

Exceptions. Pay a larger proportion of billings for valuable extraordinary contributions, e.g.:

– Rainmaker. Someone who brings in good clients or generates extra business with current ones

– Creator. Someone who develops new intellectual property that allows you to bring in increased billings.

Raising rates

It’s easiest to raise rates for new clients. But if there is a large disparity in rates between new and old clients, then you will begin to resent the lower-paying ones. It’s then time to raise your rates, or fire these customers. If your rate is below market, and your client leaves you because you raise rates, then they will end up paying even more, so why would they leave you? You know it’s time to raise your rates if your clients tell you you’re under-priced.

Should you take jobs on commission?

Have a sliding scale? Give a lower rate for non-profits or start-ups? Before you do any of these, make sure you have enough full-rate work to maintain a viable business that pays you well. Then, if you wish, set a certain percentage of your projects that you will do at a different rate. But beware! These projects are time eaters. If you are working for me on spec or for a very low rate, I have no compunctions about asking you to do just a little more.

 

And finally, here is my Rule #1 for pricing:

“Never subsidize anyone wealthier than you are!”

How to Finance a Second Location

Financing your 2nd location. Checklist of expensive things that small biz owners often overlook.

From a question on LinkedIn by Arthur Goldhaber

Q: What cost items get left out when store owners are figuring out what size loan they need to open a second location?

A: Here are some expensive items that owners often overlook. I have several small business clients that have recently gone through this—a restaurant, a bakery, and another company that moved to a larger facility. They were good at figuring the new operating costs, lease and facilities cost, and tenant improvements, but there were several ways they underestimated the cost of the expansion:

The cost of expanded inventory. Some owners try to purchase expanded inventory out of current cash flow rather than making that part of the new-facilities investment, and they soon go into cash crunch. Their cash reserves won’t carry them through the time between when they must pay for new inventory and when they get cash from selling it.

Hiring and training a top manager for the second facility. Assume the owner currently runs the first location, and has an assistant manager. If the assistant manager is not skilled or experienced enough to step into being manager of the second location, then a new and more expensive manager will have to be hired and groomed for some period of time. That is strictly an overhead cost.

Help for owner. Since the owner will be totally absorbed in getting the new place going, someone must take over many of his or her regular responsibilities. This may require hiring extra people. (But may be combined with hiring the new manager.)

The cost of getting needed approvals, negotiating a lease, designing the new interior, overseeing the tenant improvements. These things take a lot of the owner’s time, but they also may require hiring expensive professionals: engineer, consulting contractor, lawyer, architect.

Cost of changes in location #1. The original store may need an upgrade to bring it in line with the snazzy new place. May need changes in the back office to accommodate admin for two locations. They discover that their old systems are completely inadequate, and need an upgrade: POS, inventory control, employee time tracking, accounting, plus the computers and networking—all integrating multiple locations.

Hiring and training staff for the new location before it opens, and before it has positive cash flow.

“Stuff happens” funds, to cover delays, glitches, cost overruns. For example, “At the last moment, the city required us to upgrade our handicapped access.”

The cost of capital. They may neglect to factor in the cost of borrowing the capital they need, paying interest on the investment until the new location is profitable.

Get the right kind of loan. Some businesses try to finance expansion with their revolving line of credit, which must be repaid every year. This can actually force you out of business! You must get a term loan for 5 to 7 years, which allows you to repay out of the profits of the expanded operation.

Never finance long-term needs with short-term capital!

Don’t use revolving line of credit, credit cards, or vender credit–except for quick turnover items or as a receivables bridge.

Do use term loans (including a personal loan), equipment leasing, funds from second mortgage or your own savings.

 

The good news is, once a company gets its #2 location up and running successfully, #3 and 4 are a lot easier. And since you’ve proven you can do it, it’s easier to attract capital.

Financing for soap making business

Getting start up financing for a company that makes handmade soap can be tough, but here’s an unusual approach that might work in this case.

My wife needs financial help to restart her handmade soap business, hopefully a grant. We have the building, need to upgrade computer and software, get raw materials, build a web presence. Asked by Scott Coe on LinkedIn.

MVH: My first question: do people and stores want to buy her soaps? If so, can she hand-make some samples? Could she use the samples to make some sales, collect some deposits, then use that money to buy more raw materials and make the soap that was ordered? If she prices properly, she should have enough gross profit to buy the next batch of ingredients and make more soap.

This is customer financing and it’s not that unusual. It requires having buyers who believe in your products. But people may be more willing to do this than to loan or give her money.

This is pure bootstrapping, and you don’t want to do this if you can raise capital in any other way.

You didn’t say how much you need to raise, and that makes a big difference. But if you can’t even afford some raw materials, it seems premature to worry about upgrading your computer and software. Use pencil and paper. Spend no overhead before its time!

Websites can be put up very inexpensively–free here on WordPress, plus hosting for less than $100 per year. It just takes time and gumption. Or spend a few hundred on a virtual assistant to do the initial set up. Most internet and web things are time-intensive, not money-intensive, but hiring a dollop of skill helps a lot.

The more capital you raise, the faster you can grow.

The more you can demonstrate demand, the easier it is to attract capital.

So hit the pavement and make sales.

I’ve never seen anybody get enough money from a grant to launch a viable business. Just enough to go broke.

The likely sources of financing for this venture:

— Your own savings

— 2nd mortgage on your house

— Family, even though it’s very risky even asking them

— A bank loan with a personal guarantee

— A private backer who strongly believes in her skills and concept

A product like this might be a candidate for crowd funding. Google this.

Financing a new restaurant

Getting outside financing for a start-up restaurant is tough. Here are most likely sources.

Where can I get financing for my start-up restaurant? Asked on LinkedIn by Tom Leach.

MVH: Restaurants started by inexperienced restaurateurs have one of the highest mortality rates in business. Thus nobody wants to invest in them, not even your mother! Certainly not a bank.

financing fine diningOne of my clients who runs a very successful restaurant, and who now has financiers offering to invest in his new locations, got his start by buying the restaurant where he worked out of bankruptcy for a very small sum. So then he had a restaurant with a location and a lease, all furnishings and equipment and permits, an established clientele, and employees including a chef. Financed totally from his savings built up while working there. He made it work by improving operating efficiency and customer service.

The likely sources of financing for this venture:

— Your own savings

— 2nd mortgage on your house

— Family, even though it’s very risky even asking them

— A private backer who strongly believes in your skills and concept

— A bank loan with a personal guarantee

Do Small Businesses Fail for Lack of Money?

Running out of money is often the endpoint of years of bad business decisions. Here’s how to avoid this fate.

I say it’s a myth.

cash management, cash flowBelieving this shifts attention away from the real problems. It’s like saying the leading cause of death is your heart stopping. Well, duh. But why did your heart stop? Most heart attacks hit people who haven’t been taking care of themselves for years.

Same with business. Running out of money is often the endpoint of years of bad decisions. For example:

Not watching the numbers closely. Not having financial statements you can understand, and not getting or reviewing statements in time. You should tell your bookkeeper/accountant exactly what numbers you need to track, when, and how you want them displayed. If they don’t give you what you want, replace them.

Not controlling costs. Keeping unnecessary payroll and other expenses. Some owners borrow money to avoid laying people off. During tough times, if you’re not ruthless with expenditures, you won’t have the reserves to take advantage of later opportunities.

Focusing on revenue instead of profitability, therefore not paying attention to the margin of jobs or sales. Taking any work. “I’ll make it up on volume.” “Maybe they’ll grow to be a big customer.” Don’t bet your business on these beliefs. Insist that every job must make a profit. Make sure you have systems that allow you to allocate costs to profit centers, so you can know the profitability of each thing you sell.

Under-pricing. Many small businesses try to meet the prices of large, well-capitalized competitors, rather than competing on unique services and features that set them apart and command higher prices. Set your prices to include your desired profit margin.

Not anticipating needed growth capital, so that a growth spurt causes a cash flow squeeze. It’s very difficult to grow relying on current cash flow. People criticize companies like Apple for amassing a huge cash hoard, without realizing that this is necessary to fund growth, innovation, and keeping options open.

Having the wrong kind of financing. Financing growth with a short-term line of credit that must be paid off each year, rather than with a 5- to 7-year term loan. And how many of us have financed growth on our credit card, thus saddling ourselves with interest payments that eat up the profit needed to repay the loan?

Not saving during good times, so that you have a fund for tough times. Too many owners would rather spend than save because they don’t want to pay taxes on the profits.

Not being “bankable.” For example, if you run your business to minimize taxable income, you’ll never get a bank loan. Try telling your banker that you really do have a profitable business, despite what your tax returns show. Take your banker to lunch, and ask what the bank will need from you in order to approve the loan you will need.

Not refining your business model to stay competitive and to meet the emerging needs of your customers. Just staying the same because it’s the easy thing to do. The old cliché, “Work on your business, not just in your business,” means that you as owner need to keep looking at opportunities, challenges, alliances, and strategies.

Ineffective marketing. If you don’t keep looking at what works, refining your offering and outreach, and dumping the rest, your business will slowly decline. Where can you get the most bang for your marketing buck? What ineffective things should you drop? How can you leverage your effort?

I’m sure you can think of others. If you address these problems in your business, you’ll never have to use “I ran out of money” as an excuse.

This is one of the lessons in How to Thrive in Tough Times—Lessons From Small Business Owners–my newest ebook, just posted on Amazon for Kindle, iPad, etc. for $2.99.