An economy like this one we have puts start-up founders and entrepreneurs to the test. When the economy is good fast sales tend to mask underlying problems in your business that may not be getting the attention they deserve. Suddenly problems start surfacing and you can very quickly get yourself into trouble and even end up shutting your doors for good.
The other day I heard a business coach being questioned by a radio journalist about the type of problems that most businesses are facing. The coach mentioned that one of the biggest issues is cash flow. This comes as no surprise because in this hard economy customers who have credit with small businesses are paying later and suppliers want to be paid sooner and are more reluctant to dish out discounts. But the real issue is sales. When sales are slowing because customers are postponing purchases, making do with what they’ve got, sales tend to take a nosedive.
The discussion led to the business coach mentioning three things that affect businesses most often. They are: sales conversions, attracting customers and profit margin.
Sales conversion might seem like an easy issue if you are running, for example, a small computer business and you are dealing mostly with cash sales. But when your work involves needing to provide quotes to potential customers such as in a service business, then converting your proposals into sales becomes important. It’s not an easy area to tackle and when I’ve worked with clients on this issue, you have to dig deep to find the root causes. It could be your market selection is causing the problem. Or it could be your offer. Then there’s the credibility of your business such as delivery times and product quality.
Attracting customers is the hardest part of any start-up or small business. Especially in the beginning. It requires careful potential customer segmentation, reaching those potential customers and stimulating them to buy. Face-to-face selling has become expensive with higher salary and commission demands as well as transport costs. Other forms of reaching customers such as through print media and online can be effective but if you get it wrong you can waste a lot of money. Customer acquisition can be an expensive game if you don’t get it right.
In its simplest form profit margin depends on your cost of sales and your overheads. Simply, the higher costs you have the less profit you make. But all these things are linked because if your sales are declining then you will most certainly feel the squeeze on your profit margins. Knowing which costs to cut out from your value chain or your value proposition to your customer is a fine art. In highly contested markets, the temptation is to offer discounts but discounts erode your profit margin. Not everybody gives discounts. Go have a meal at a local restaurant and don’t be surprised to get a rather stern face looking at you if you ask for a discount. Even the hard goods stores where you would think you could get a discount will at best offer you 5% if you pay them cash. Think long and hard before you discount your products or services.
Instead of paying a business adviser or coach for 18 months worth of consultation perhaps it’s better to get someone in to give you a health check up on your business using their fresh pair of eyes. You properly know what to do any way and the consulting insight will merely clear your mind to your problems much as pool chemicals will add sparkling clarity to your pool water. Your motivation to act doesn’t need to involve any “woo woo” stuff. Once you know what the problem is, all that’s left really is for you to do the hard work.