Alright, let’s talk about something that’s been a pain point for a lot of business advisors lately—financial literacy. It’s been an issue for a while now, and it’s affecting small businesses big time.

How do you deal with clients that have low financial literacy? The truth is, across the board, financial literacy in SMEs is pretty low. And there are three main things business owners are doing that are seriously hurting their profitability. This is stuff business advisors are running into every day.

1. Running the Business by Bank Balance

Here’s a common one: a lot of business owners are managing their entire business through their bank account. They’ll check if there’s money in the account, and if it looks good, they assume everything’s fine. But ask them how business is going a week later, when the bills roll in and payments haven’t come through yet, and they’ll tell you things are tight.

The problem is, they’re not looking at the actual performance of their business—they’re just looking at the bank account balance. This method does nothing for managing profitability or understanding where their margins are. So yeah, if you’re just relying on your bank balance, it’s not going to give you a full picture of your business health.

2. Pricing Based on Competitors

Most business owners don’t like overcharging customers (which is great!), but here’s the thing—many set their prices based on what the competition is doing. This sounds logical on the surface, but the problem is, every business has a different cost structure. One competitor might have way lower overhead or no debt, while another might be drowning in costs you don’t even know about.

If you’re pricing your products or services based solely on what others are charging, you could be driving your business into the ground without realizing it. You can’t just “race to the bottom” with pricing to keep up with the competition—it’s a surefire way to hurt your business in the long run.

3. Discounting to Get Work

Now, let’s talk about discounting. Most SMEs make around 10-12% net profit after everything’s said and done. So what happens when you offer a 10% discount just to keep the work coming in? Well, you’re basically wiping out your profit. And I get it, business owners think they need to keep the doors open, keep people busy—but constant discounting is just a race to the bottom.

If you’re always discounting to get work, and you’re already operating on slim margins, it’s almost impossible to stay profitable. It’s one of those habits that seems harmless at first but can really damage the business over time.

The Big Picture

So imagine this: you’ve got business owners running everything by their bank accounts, pricing based on competitors, and discounting to get work. No wonder there’s so much trouble in the SME community when it comes to profitability!

If you’ve worked with businesses and helped them figure out margins, analyze a profit and loss statement, or get away from relying solely on their bank accounts, then you know how much of a game-changer this can be.

Something to think about next time you’re working with those local businesses you pass by every day.