Pricing so a business is not busy and broke

The sign is stock moving fast and the tin still empty at the end of the week. Everybody can see you working. Customers come. And there is nothing left to buy next week's stock with, so you borrow, and the loan repayment becomes another cost you did not price for.

There are usually only three causes, and it is worth deciding which one is yours before changing anything. The price is below your true cost. Household money is being taken out of the business tin. Or credit given to neighbours is never coming back.

Each has a different fix and they are often confused for each other. Raising the price will not help a business that is really being eaten by unrecorded credit.

Take one buying trip and write down everything you paid from the moment you left home until the goods were in front of a customer. The goods themselves, the fare there, the fare back, the boda that carried the load, whatever you paid to store or display them.

Then divide by the units you can actually sell, not the units you bought. This is where most costing goes wrong. A basin of tomatoes does not become a full basin of sellable heaps, because some go soft on the way and some are pressed at the bottom. Count the heaps you really put out, over four trips, and use that number.

That figure, the true cost of one heap or one loaf or one dress, is the floor. Selling below it is not a small loss you can make up on volume. It is a loss repeated once per customer.

Nobody forgets the price of the goods. What gets left out is everything that happens around them, and in a small business those costs are often larger than the profit.

Go through this list once, honestly, for your own business. Two or three of them will surprise you.

This is the one people argue about. If you do not pay yourself, the argument goes, it is not a cost. But the day you fall sick, or a child needs you at the health centre for a week, somebody else has to do that work or the business stops. The cost was always there. It was just being paid in your time.

Put a number on it. What would you have to pay a young woman to sit at that table and sell for a day. Include that in your cost, and if the price will not carry it, you have learned something important about the trade rather than about yourself.

A business that only works because you work for free is a job with all the risk of a business and none of the wage. It can still be worth running for a season. It should not be a plan for a year.

Customers buy a heap, a cup, a basin, a bundle. So price the heap, not the kilogram, and work out how many heaps your buying unit really makes.

When your buying price moves a little, most traders adjust the size of the heap rather than the price, and that is normal and understood. It has a limit. Shrink the heap far enough that customers start counting and comparing, and you have not saved money, you have taught the trading centre that your heap is the small one.

When the buying price moves a lot, change the price and say so plainly. People buy from someone whose price they can predict, even when it goes up, more readily than from someone whose heap keeps changing shape without explanation.

Your price has to do three jobs, not one. Cover the true cost. Pay you for your hours. And leave enough to buy next week's stock plus a cushion for the week something spoils or a customer does not pay.

That third job is the one that gets dropped, and dropping it is why a trader who is doing fine suddenly cannot restock after one bad week.

Do not simply match a neighbour's price. She may be buying in bulk, or buying nearer, or selling something on the side that carries her. If you cannot make your arithmetic work at her price, you have three real choices: buy differently, perhaps together with other members of your group, sell a different quality to a different customer, or sell something else. Matching her price and hoping is not one of them.

Credit is not the enemy. Uncounted credit is. Keep one book, write the name, the date and the amount, and read it back to the customer as you write it, so there is no argument later about what was taken.

Set a total you could survive never seeing again, and stop when you reach it, even if the next person asking is somebody you like. Never give credit against stock you bought with a group loan that is due next week, because that turns your neighbour's delay into your default in front of your own savings group.

Say no in a way that keeps the customer. Offering a smaller quantity for the money she has today sells something, keeps her coming back, and does not put your week at risk. Most people asking for credit would rather buy small than be refused entirely.

Two tins with different lids, kept in different places, or a mobile money line used only for the business. The method does not matter. Having two of them does.

Pay yourself on a fixed day, a fixed amount, out of the business into the household. That single habit turns an unanswerable question into an easy one. Instead of wondering whether the business is working, you know: it either paid you this week or it did not.

The house does not borrow from the business and the business does not borrow from the house, and if either happens because it genuinely must, write it down as a loan with a date. Untracked movement between those two tins is the most common way a profitable small business disappears.

Once a month, on a fixed day, do a short count. What stock you are holding. What cash is in the business tin. What customers owe you. Then subtract what you owe: the group loan, the supplier, anything on credit from someone else.

Write that one number down and keep the page. Next month, do it again and compare. If the number is not bigger, then a month of being busy did not make you any money, and now you know it in the fourth week instead of the sixth month.

When the number is not moving, go back through the forgotten costs before you blame customers. Almost always it is a cost that was never in the price rather than a market that has gone quiet.