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Are you undervaluing your business?

By Cathy Wever

2 min read

As a startup, you need to be competitive. You want to collect a few wins, make some sales and sign a couple of clients. Yet in the rush to establish yourself, you could be guilty of making a common rookie mistake: undercharging.

It’s easy to do

Most startups undervalue themselves. They either don’t know the real value of their work, or intentionally undervalue themselves for competitive reasons. In fact, a recent survey conducted by Intuit revealed that 35 per cent of startup businesses undercharge for the work they do.

While you may feel undercharging gives you a competitive edge, it can actually be your worst enemy, making it impossible for your new venture to survive.

Why undercharging is unwise

It can be tempting to price your products and services below those of your competitors. But how low is too low? Racing to the bottom can make it impossible for your new business to turn a profit or even stay in the black.

Pricing your products and services correctly can be the difference between staying afloat and going under. And when you consider that one in three new businesses fail due to poor financial decision-making, pricing correctly isn’t simply an option it’s an imperative!

Number-crunching

Only 12 per cent of startup owners feel they have a thorough understanding of business finances, yet getting a handle on your business financials is the only way you’ll be able to put a true dollar value on your products and services. With this knowledge, you’ll be able to charge accurately and grow a profitable business in the long run.

Boosting your bottom line

Most startup business owners pay themselves at least one-third less than average weekly earnings before tax. Despite this, most startups generate very modest profits (less than $50K per year). It’s not surprising then that 60 per cent of startup business owners believe they could do a better job of financial management.

Clarity into business finances can help startup owners pay themselves and their staff more and generate higher profits. After all, it’s only when you can see business value that you can charge for it.

Sole trader?

Many startups operate as sole traders a significant number of whom do the bulk of their financial management themselves.

Sole traders can find it especially hard to put a dollar value on their services, but undercharging can be extra harmful for this group, who can struggle to earn a living if they consistently charge too little.

Help is at hand

Believe it or not, affordable cloud-based accounting products can simplify the challenges of understanding your business finances and working out what to charge. Intuit’s QuickBooks Online, for example, is a cloud-based system that can give you real-time information around the true cost of running your business and help you develop a pricing structure that supports its viability and growth.

Interested in knowing how you stack up against other Australian small business owners? Take our Financial Fitness Quiz to test your financial literacy knowledge.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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