This morning I met with a small contractor to review his year to date results of operations and compute the income tax he should submit by Sept. 15th. During the meeting he mentioned how busy he has been and that he is turning down offers to look at more work because he is already scheduled a month in advance.
A review of his transaction records showed he is having a record year for his small business. He is busier than ever and on a pace do over $100K in business, about 20 percent more than last year. There is only one problem: he has almost no cash in the bank. How can this be? If business is booming and he is so busy, why isn’t he in a better cash position?
I analyzed his income and expenses and noticed he is charging his materials at cost so there is no mark up. He is doing this to avoid having to collect and remit sales tax from his customers. He is only marking up his labor 50 percent over cost. Thus, he is doing a lot of work and the money is in one hand and out the other. You can do a million dollars of work at cost and not make a dime for yourself!
Folks, if you are so busy you can’t get to it all, raise your prices! You do not have to be the least expensive service provider around. If you are good at what you do, and you provide good customer service, you do not have to be cheap! Think of it this way: If you raise your prices 33 percent, and subsequently lose one third of your customers because of it, you are making the same amount of money and doing a third less work!
We work so we can live, we don’t live so we can work!