I’ve been on a hectic book tour the past several weeks, and I’ve listened to thousands of small business owners discuss their concerns. One common problem: we need more sales.
Yes, we’d all like to increase our revenue and build our businesses. But hold your horses — not all sales are good sales. Sounds counter-intuitive, doesn’t it? In order to build a successful business, you must recognize there are times when less is more.
Allow me to explain.
Many small businesses reduce their prices in order to bring more business in the door — particularly in today’s economy. However, in most cases the owner doesn’t stop to consider the profitability of the new business. While the company’s sales figures increase, its profitability often narrows to a point where cash flow issues occur. In the worst case scenario, the company lapses into a negative cash position.
All new business opportunities need to be carefully considered. As the business owner, you should understand exactly what it is going to cost to deliver the product or service, including all your business overhead. Is there enough profit to absorb changes or adjustments? Do you have the current staffing and resources to manage the project without jeopardizing other business?
I’ll share a real-life example without divulging the company’s name. ABC Company bid on a large government contract to deliver a particular service without a detailed and thorough analysis of the resources it would take to deliver. After winning the bid, the additional internal resources and development required to fulfill the contract turned what the owner thought would be a highly profitable project into one that barely broke even. Furthermore, because of the strain on the company’s resources, other, more profitable projects had to be delayed.
In today’s economy where cash is king, no business should jeopardize its financial health by selling too much for too little. While it’s hard to turn business away, you can be more successful by concentrating on the types of business opportunities that are most profitable. And it’s not always just about new business. Some companies are choosing to fire their low-margin customers or to discontinue less profitable product lines and as a result they are enjoying healthier bottom lines.
So remember, nothing happens until you sell something. Just make sure you sell it right.
image by Flickr user jakerome
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You know the type: all businesses should be built on what the founder wants to do, but that has to be tempered with consideration for what people need, want, and want to pay for. And the image on the slide is the Apple Newton, which is a good example. There was a need – the success of the Palm Pilot four years later proved it – but the Newton didn’t meet it. Don’t just count on pride and persistence, make sure there’s a need for what you’re selling.
Starting costs are predictable, they depend on what you need to buy, the early expenses, your marketing costs, your strategy, resources, and so on. Some cash flow dynamics are predictable. For example, you need to know ahead of time if you’re going to have to wait for customers to pay you after receiving the goods or services you give them. You need to know if you have to stock a lot of inventory.
There’s so much uncertainty in any business, now and since forever, that it’s just foolish to not break that all into a plan that puts it into perspective. It doesn’t matter that a plan will change – and it will – because just getting started with the planning helps you understand all the factors involved. And when you have a plan, you start immediately to review and revise and track results, so having the plan makes it easier to correct it as needed. Plan, and keep that plan alive.
That’s a common problem. Sometimes they underestimated one-time startup costs. Sometimes they didn’t allow for those lags that happen in business-to-business sales, the two or three months that go by between delivering the invoice and getting paid. All of these, and a lot of other things, boil down to just not having enough cash.
Want to sit in a middle seat? Discount.
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