The cost of bad bookkeeping (continued)
What stood in his way was that he was six months behind in his bookkeeping, and it would take weeks for him to get his books in order.”
Unfortunately, he needed the money right away. And there isn’t a reasonably priced lender out there who will lend to anyone with such outdated financials. It’s easy to look at this situation and think that this owner got what he deserved. But the reality is that it’s easy to slip on keeping up the books.
There are so many pressure points in a business. Perhaps most striking is how quickly you have to flip between playing offence and Getting Publicity
Discounting is risky
Discounting can be dangerous to the financial health of a business. Discounting is not generally a wise long-term strategy.
If your strategy is to win new business by being the cheapest, you only have the advantage until a competitor reduces their price to be less than yours. It is not sustainable unless you have a cost advantage over your competitors and your product or service is very sensitive to price changes.
Many people do not realise the extent of the volume increases they need to compensate for discounts in price. It doesn’t take a complicated financial analysis to see how much your volume needs to increase by to achieve the same amount of profit when you discount. Typically, if your gross margin is 30% and you discount price by 10%, your volume needs to increase by 50% just to retain your starting profit. For sure discounting is a valid strategy to clear old inventory or to stimulate slow sales periods but not as a general strategy.