We’re going to have a whole bunch of new clients and work in the next few months. It will be hard to turn down any opportunity since things have been pretty lean for us recently. I’ve heard you say that sometimes a business can take on too much at once. Why do you suggest being careful?
Too much business can be as deadly as too little. It seems hard to turn down opportunity after all the work to open new doors, but that may be the prescription for a successful outcome. The right amount of growth can lead to greater long-term profits, happier employees and an owner committed to building the business.
Recovery sales are what happen at the bottom of a recession. Businesses throw every resource they have at sales and marketing. Smart owners know that they’re going to have to grab market share in order to protect and grow revenue.
At the same time, other companies are doing the same. The landscape gets much more competitive and deals get struck that owners wouldn’t think about making in more robust economies. Profits drop in favor of discounts, margins get shaved and people work overtime to deliver faster in order to ensure that cash flow comes in.
As the economy begins to heat up, old proposals, written at the bottom of the economic slowdown, start turning into business. Buyers press for expedited services so that they can ramp up faster – while at the same time demanding their vendors hold to the terms offered – which often includes bargain rates. More work, less profit, more expensive delivery to meet the expedited terms.
When things start to heat up, many business owners are so busy chasing opportunity, they don’t take the time to step back and look at what’s happening. They’re so grateful to see business coming in, they put their heads down and bull forward. Too late, they realize they’ve committed to too much work, at less than favorable terms, with margins that don’t work well.
At the same time, as the economy heats up, other costs start going up. Here’s one simple example. We’ve all been to the gas pump lately. Employees, caught in the middle with flat wages and increasing costs, start to ask for gas allowances and pay increases. Vendors add fuel surcharges and price increases. Materials made of plastic cost more. The cost of making sales calls, ordering materials and delivering finished goods and services goes up. The company gets squeezed in the middle, between low-margin proposals and increasing costs.
What can a savvy business owner do? Schedule a weekly review session. Review the profit margin on each proposal and on every outstanding account. Red flag accounts that have been particularly difficult to deal with, not likely to negotiate or tolerate add-on fees. Green-light accounts that are likely to represent your company’s future – innovative, profitable and respect what your company can do for them.
Figure out at a minimum how much business your company needs right now to break even. If your company is already profitable, plan on 15 percent to 20 percent revenue growth per year. Focus on growing products and services that are the most profitable.
Go back to the red-flag accounts and be a tough negotiator. Be willing to walk away. Send the least profitable accounts to your competitors – let them deal with the headaches. Focus on getting the green-light accounts. Know that the decisions you make could represent the future success or failure of your business.
If you and your employees are able to take on high-quality business, and avoid doing business with the loser accounts, you’ll be headed in the right direction. Profitable accounts mean you can give employees raises, afford the inflation that’s likely to come, invest in infrastructure, pay down debt, build reserves, and reward the owner(s).
Looking for a good book? “Found Money: Simple Strategies for Uncovering the Hidden Profit and Cash Flow in Your Business” by Steve Wilkinghoff.
Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. Questions may be e-mailed to her at AskAndi@StrategyLeaders.com or mailed to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Phone: 877-238-3535. Visit www.AskAndi.com for archived Ask Andi articles.