Category Archives: Self-Employment

Entrepreneurship, Owning a Business, Self-Employment

Cheaper Prices Don’t Build Goodwill

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By Dan Boudreau

You’ll never build goodwill by under-charging your customers. Those new to business are prone to undervaluing their products and services. This is one of the great pitfalls when starting a new business.

Whether from insecurity or just not knowing the costs, new business owners tend to want to shower their customers in great value by charging less than the other guys. Aside from the fact that undercutting is a sure recipe for going broke, it invariably leads to problems down the road when you want to increase your prices.

  • Once customers are used to your low prices, it’s difficult to train them to pay more, and you are sure to lose a few when you increase your rates.
  • Customers who have received your goods at lower prices tend to think you’re cheating them when you start to charge more.
  • When you do begin to push your prices upward, you are bound to lose a few of the old customers who were just along for the free ride.

If you underrate your goods, your customers are almost certain to downgrade them too. A well intentioned deal might be perceived as worth a bit less, but you don’t want the customer thinking your services are completely worthless.

As a new business owner, one of the first pricing decisions you’ll make is to decide whether you really want to compete on price. If your strategy is to compete mainly on price, keep in mind that a large competitor will almost always crush a smaller business like a bug. Deeper pockets always prevail when price wars occur.

Here are a few suggestions for anyone tangling with the issue of pricing.

  1. Decide whether you want to be the cheapest, the fastest, or the best. Pick any two; trying to be all three is a sure recipe for going broke.
  2. When you’re setting your prices or rates, learn how much your competitors are charging and then position your prices where you want them to be. You don’t have to charge a lot less than the other guys to be perceived as giving a better deal.
  3. When it comes to providing a service, you will need to determine a value for your time. If you’re transitioning from a role as an employee to become self-employed, it’s important to remember that your hourly charge-out rate now needs to be much higher to help cover the cost of operating your business.
  4. Instead of simply attempting to undercut your competitors, find ways to provide more value to your customers; sometimes it makes more sense to compete by offering higher quality, or better service.
  5. If you’re already in business and your prices are too low, it may be time to begin to ratchet them up a bit. Be prepared to lose customers who refuse to adjust. In some cases, you may feel a shameless sense of relief as the more tenacious hagglers head off to buy from your competition.

When all is said and done, business owners need to pay the bills and earn a living. If your prices are too low to achieve these two goals, it may be time to increase your prices or consider winding down the business.

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Self-Employment, Starting a Business

Nine Reasons To Charge More Than Your Old Boss Paid You

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By Dan Boudreau

Congratulations! For anyone with the slightest trickle of entrepreneurial blood flowing through their veins, it’s a glorious day when the boss offers to pay you as a contractor rather than as an employee. As an employee, you worked hard to gain your employer’s trust, earned your stripes, and got the contract.

Then comes the agonizing chat about how much to charge. This is when budding contractors need to sharpen their pencils. When it comes to business expenses, the boss will have a clearer view. Unless he is willing to share financial details, most employees will be ill prepared when it comes to figuring out how much to charge for their services, and most tend to bid too low.

Here are nine expenses that need to be covered in your hourly rate, if you’re going to survive the transition from employee to contractor.

  1. Employer Payroll Burden. This amalgamation of costs is often referred to as Mandatory Employee Related Costs (MERC’s). It includes the employer’s portion of employment insurance, pension, holiday pay and any other employee benefits.
  2. Insurance. You’ll need liability insurance and, as a contractor, you’ll be responsible for paying premiums for your own Worker’s Compensation coverage, as well as providing mandatory insurance for all workers under your employ. To learn about WCB costs, go to www.worksafebc.com and lookup rates and classifications.
  3. Rent and Utilities. Your business will have to have a home, and for many budding contractors that will be somewhere at your personal residence.
  4. Bookkeeping and Accounting. As a small business owner you’ll need to keep accurate records and complete year-end financials for tax purposes. Equally important, you’ll need to know, as owner, where you’re at financially at all times throughout the year.
  5. Legal. You’ll want a lawyer’s help in developing your agreement with your former employer, and there will be other legal purchases, such as licenses and permits.
  6. Marketing, Advertising, Sales. Even though your first contract fell into your lap through the good relations you’ve built with a current employer, you’ll soon be buying business cards and learning how to get the word out about your services.
  7. Tools and Equipment. As a contractor, you may need to supply tools and equipment that previously were provided by your employer. You’ll need to factor in the purchase cost, as well as the cost of repairing, maintaining and replacing equipment.
  8. Office Expenses. In today’s work environment, it’s difficult to imagine a business without a telephone, internet access, some sort of mobile, and a computer-fax-printer. There will also be a desk, chairs and something to store files and documents in.
  9. Bank Charges and Interest. A business needs its own bank account, independent of your personal account. If you borrow funds for business purposes, you’ll be paying interest on those funds until they’re repaid.

The Canada Revenue Agency is the final authority when it comes to deciding whether you’re an employee or a contractor. To locate tests that help to determine whether or not you’re an employee or a contractor, do an internet search using the keywords “employee vs. employer.”

As a contractor, if you’re charging anything less than double what the employer paid you as an employee, you’re probably not charging enough to cover your costs. Your appetite for contracting is more likely to grow if you start out with a healthy pricing strategy.

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Entrepreneurship, Self-Employment, Starting a Business

Keep Business and Personal Lives Apart

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personal_business_livesWhen it comes to owning a business, newbies often make the mistake of combining their business and personal affairs. As a business owner, it’s healthy to separate yourself from your business and treat your business as a separate entity.

A little investment of energy early on can bring huge dividends later in the life of your business. For example, set up a business bank account, rather than mixing your business and personal expenses – your accountant and bookkeeper will both be thankful. You will also enjoy the benefits: less confusion and lower accounting and bookkeeping costs, particularly when your friendly neighbourhood tax auditor comes knocking.

New owners have a tendency to dovetail their personal and business lives, usually in an effort to save a few dollars. I have done this in the past and it only leads to difficulty. Any savings quickly evaporated when it came to sorting out the mess later.

Think of your new business as a separate entity, like having a baby, building a house, or hatching an egg.

Here are some ways to separate your business from your personal life.

  1. Separate your personal time from your business time.
  2. Coach your customers to contact you during your business hours.
  3. Train your friends to contact you during personal hours.
  4. Consider yourself to be an employee of your business and pay yourself a wage.
  5. Open a business bank account, pay business expenses from that account and pay your personal expenses with your wages.
  6. Establish separate telephone and fax numbers for the business.
  7. Create a separate Internet and email presence for the business.
  8. If you’re home-based, create a separate space for the business and if possible, have a separate entrance for customers.
  9. Even if your business is a proprietorship for which the tax authorities view you and your business as the same entity, set-up your business with its own bookkeeping and accounting systems.

There are some great payoffs for separating your personal and business affairs. You will:

√      Know your personal and business expenses

√      Be more effective at calculating costs and setting prices

√      Find it easier to deal with auditors

√      Lower your bookkeeping and accounting costs

√      Be better prepared if you decide to sell the business or bring in a partner

√      Have more peace of mind

With much to gain and little to lose, I urge you to consider your business to be a separate entity from yourself.

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Plan to Grow Your Business in 2012

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If you are running a business and are tempted by the growth bug, the first priority is to take a close look at your business and decide whether you really want to expand. If you love what you do and your small business, at its current size, meets all of your needs, there may be no reason to expand.

However, if you do want to increase capacity, customers and sales, there’s no time like the beginning of a new year to kick your business into gear.  Here are a few things you can do to prepare yourself to ride the winds of change.

  1. Update Your Business Plan. Groom your vision and mission. Set your strategy and goals. Once you’ve initiated your expansion, step back from the plan and handle what’s in front of you. The true value of your business plan is what it teaches you along the way.
  2. Hone Your Leadership Skills. Prepare yourself for a wild succession of role incarnations. With each increase in the size of your business, your role changes—in the beginning you’ll do everything yourself, but as your business expands, you’ll need to get comfortable delegating tasks to others, hiring more people, and outsourcing. Prepare by reading, consulting with advisors, taking on mentors or coaches, and taking courses, workshops and webinars.
  3. Grow Your Network. The bigger your business the larger your network. Identify the individuals and organizations important to your business expansion, strengthen existing relationships, and open the door to building new ones.
  4. Cultivate Financial Relations. As the business grows, you will need to rely on others for money—family, friends, angel investors, lenders, venture capitalists, and shareholders—look after your financial partners, maintain a stellar credit rating, collect receivables promptly and pay your bills on time. Prepare for growth by minding your financial garden.
  5. Develop Systems. When you own a small or micro business, every minute not spent working in the business must be invested in working on your business. As you grow, you will need reliable systems to build upon—administrative processes, operational procedures, marketing tools and practices, human resource guidelines and standards—and the list goes on. You will need a policies and procedures manual to deal with all nature of processes within your business and to mitigate the many liabilities any business encounters.
  6. Get Rid Of Bad Customers. Make room in your schedule to deal with new business by offloading bad customers. A good place to start is with your accounts receivable—have a heart to heart with any of those who are unwilling to pay and cut your losses and cut the ties.
  7. Get Out Of The Way And Lead. Once you’ve selected the right people, turn your attention to being a leader. Done properly, delegating and outsourcing should extend your capacity in a safe, cost-effective way. Engage good people and trust them to do their jobs.

Business expansion growth is rarely a linear, tidy process. More likely it’s going to be a donnybrook, your survival contingent on your street fighting skills. By all means write your business plan and read the books on growing your business. But when your business takes off, be ready to roll with the punches and take a few on the chin. With the right blend of planning and reacting, you can also expect to enjoy the fruits of your labour.