You didn’t go into business to lose money or give yourself massive amounts of stress. However, that is exactly what happens when you enter the business arena without knowing the purpose and the rules of the game of business.
The only reason your business exists is to make a profit. The only way to ensure you make a profit is by realizing that when you chose to become a business owner, you inherited certain responsibilities and obligations you did not have as an employee of someone else’s business.
Before you obtained the technical ability to be a journeyman in your trade, you had to be taught the techniques of the trade. Similarly, before you can run a business correctly, you should have some business education under your belt.
The first thing to know is the two types of people in business: “business people” and those who are “people in business.”
Business people act in a businesslike manner. They understand the balance necessary to fulfill their financial obligations and the needs and wants of the consumer while earning a proper profit margin. They understand that salary is not to be confused with profit. They identify and calculate their costs, and apply proper profit margins to those costs.
Then, they sell their products and services at profitable prices because they understand their responsibilities are to control costs and maximize profits. Business people are the solution to the problems incurred in business.
The problem is the people in business. They usually guess their prices and hire people because they are breathing rather than capable. Delivering mediocrity to the consumer satisfies people in business instead of excellence.
They don’t stand behind their products or services and give the type of service that earns them a bad reputation. They complain about how difficult it is to be in business. Of course, it isn’t easy — for them. They made it difficult by doing the wrong things. And, they, through their existence in business, make it difficult for everyone in their type of business.
So, are you a business person or a person in business?
If you want to be a business person, continue reading. If you want to remain as a person in business, stop reading, sit in the corner and contemplate going out of business or never entering the business arena. It will be the best thing for you and the business world.
Qualifications for Business Success
Anyone who enters the business arena must realize that if it were easy, everyone would do it. It’s not easy! Certain prerequisites are needed. When you possess the following essential assets, you have a chance at success. If you are missing any of them, failure is imminent.
You must have:
1. Capital to set up and sustain the business and your own existence until the business takes root. There are two types of capital. The first is money or a credit line to borrow money; it will allow you to purchase what you need for the business to be feasible. The second type of capital is referred to as sweat equity. This refers to the time you put into your business without immediate compensation.
2. In-depth knowledge of your product or service to deliver excellent quality to the consumer.
3. Business knowledge to spend your capital wisely and deliver your product or service to the consumer correctly.
4. Perseverance so you can weather those situations and conditions that test your resolve to remain in business.
Some who enter the business arena are natural entrepreneurs. The overwhelming majority of contractors could not get ahead because they were employed by other contractors who did not know how to address the business problems all contractors face. Those problems are all caused by the contractor not thinking like a business person. They are the root reason that the employer could not properly compensate those in their employ.
Business people who are natural entrepreneurs are aware of what they need to succeed.
People in business lack the knowledge of their true operational business costs, the proper profit margin to apply to those costs, their value to society, how to develop a proper profitable selling price and how to address consumer questions and remarks in an intelligent manner.
They price their services based on volume as used by manufacturers in mass production — or worse yet, by charging the “going broke rate” in their area that other contractors who are people in business charge.
They hire the wrong people and don’t manage their businesses in an orderly and efficient manner. They make decisions based on emotion rather than statistics as they allow the four enemies of business — stupidity, ego, fear and anxiety — to cloud logical thinking processes.
They run their businesses in an improper manner, which decimates the individual business and the industry as a whole.
Business people know how to address, solve and remove these problems that people in business have trouble dealing with.
In turn, they can concentrate on pleasing consumers by quoting upfront prices before commencing services and delivering excellence in the performance of those services.
After all, when consumers engage the services of contractors, they all want to know the price and have the best job done. That makes sense. As a consumer, you surely prefer the best job done in lieu of the worst or the mediocre. As an intelligent consumer, you should want to know the price before authorizing the work to be done.
Provide Consumers Clear Pricing
In the contracting business, two types of pricing methods are employed: contract pricing and time-and-material pricing.
With contract pricing, the contractor looks at the job, describes the work to be performed and quotes the price of said work to the consumer before the work is performed. As long as the consumer agrees to all terms, authorizes the commencement of work, pays for the work and the job is done correctly, there can be no legitimate arguments. This system is fair to both parties.
The obligations of the agreement between the consumer and the contractor are not as clear with T&M pricing. No matter what hourly rate the consumer agreed to, an argument could undoubtedly arise over the amount of time for which they were charged and the price of the material being charged.
Additionally, T&M pricing penalizes contractors who excel at their jobs. Since consumers would compare the hourly rates of contractors, good contractors would have their hourly rates compared to the bad contractors. Since the good contractors are better and faster, good contractors would not bring in as much money as the bad contractors charging by the hour. T&M pricing is fair to neither contractors nor consumers.
Contractors who are intelligent business people strive to always deliver excellence in performance. This will give consumers what they all want — value for their dollar. Through contract pricing, the correct calculation of your costs, the application of a proper profit margin and the development of the correct selling price, you can earn the reward you deserve for the risks you take and the value you deliver.
It should be noted that there are two types of consumers: those who buy based on price and those who buy based on value delivered. The price purchasers have little chance of getting the best job done because they are always seeking the cheapest price. Prices are cheap because the value delivered is usually not the best. Therefore, the consumer will more than likely be dissatisfied.
By being an intelligent business person, choosing to implement a smart pricing policy and delivering value and excellence to the consumer, you can maximize your profits. This will allow you to build a client base of good consumers who know, and are willing to pay for, the value you deliver to them.
In turn, everyone wins. The consumers receive excellence and value. And you, the contractor, recover the costs associated with the task while achieving the reason your business exists.