West Points

Friday, December 3, 2010

"No Business is an Island"

by Heather Gurewitz
WBC Director

I had a great consult with a client the other day, at the end she really understood what she needed to do in order to turn her business around. Unfortunately, it was so empowering for her that she decided she didn't need any help going through the process. I have to say, I was not comfortable with that conclusion.

The major issue for this client was that her pricing model was completely out of date and that she had never analyzed her cost of goods. She was a great technician, but she has no business training and what she knows, she knows from having done it. When I called to follow up she thanked me for my help and expressed her gratitude for my assistance, but made it clear, she didn't need any help.

Most of the business owners that come to see us are bright and enterprising people, however they sometimes lack financial management skills, mainly because they have never taken business classes. Now, people can figure out what they want to charge on their own, but really, if it were me, I would want someone who had the knowledge and tools to help me figure out exactly how much to change my prices. While it sounds simple changing pricing can be tricky, if you don't raise your prices enough you may not solve your cash/profit issues. Or, if you raise them too much you may end up shrinking your client base, and nullify the change. So, while it sounds simple, "I'll just raise my prices," really it requires maintaining a delicate balance which requires some serious analysis. A "knee-jerk" price increase or decrease could cause your business a lot more trouble than it solves.

When West Company consultants look at this issue with our clients, we use our break-even analysis tools, profit and loss projections, cash flow projections, and a number of other tools to understand the implications of changes to the pricing model. We look at several options and we also work with our clients to make sure they understand the new sales goals they need to meet based on the decisions they make.

The economy is changing and this may require revising the pricing model your business is using, and while I often joke about being a "holistic business healer," the truth is, to determine the right pricing for your business, you need to look at all the effects of those changes, and it is best to do that before you actually make them. Not to mention, West Company offers consulting by qualified professionals at no cost to the individual (thanks to the Small Business Administration, the County of Mendocino, and the City of Fort Bragg). So, when you are taking a major risk with your business why a neutral outside opinion can help you make a more strategic and effective decision by working with an advisor through West Company, host of the Mendocino Small Business Development Center and the Women's Business Center.

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