Over the last few weeks, we have covered many aspects of growing your business and seeking new customers and so this week, we thought we would concentrate on the area that hits us most – cashflow.
As coaches, we suggest that business owners look at new markets, extra opportunities, innovation of products and development of staff. But without effective cashflow, a business’ progression can be stunted by its customers. The bulk of the issue is often caused by the 20% of customers who need constant chasing for payment.
Remember Carillion? They went to the wall owing thousands of pounds to lots of small businesses, all of which were far more in need of the money than the fat cat directors poorly running the purported “successful” business. Hindsight taught us that their success was simply built on not honouring their commitments.
It’s always an uncomfortable discussion to be had, so here are a few pointers:-
· Take stock of who owes you exactly how much and consider the time it takes you to chase these.
· Consider exactly how much of your turnover is reliant on these clients and more importantly, taking into account your time for chasing them, what actual profit you make from these.
· Imagine for one moment, if they “did a Carillion” what would be your contingency plan be for that missing money?
· How would your business look without those 20% problem clients and could you provide a better service to the 80% who treat you with respect?
· Consider the price you charge problematic customers, chances are they treat everyone the same.
· Consider changing your structure to increase your prices but offer a discount for early payment (incentive led bonus rather than a penalty for late payment).
· Consider a factoring company. Whilst we are not a big fan of these, they are paid to have those tough conversations on your behalf – but remember to enhance your prices to accommodate their fee.
It’s a tough call but sometimes, the fear of losing a client is worse than the reality. And if you are a good business offering quality work or service, why compromise?
Too often, we aren’t confident enough to have those tough conversations. For example, in a previous rental business, even though the tenants always wanted to pay, often circumstances meant that they couldn’t, so we had to negotiate an arrangement before acting. Although in our case, it was thelandlord’s money and not ours, the same principles apply in businesses.
Put simply, all businesses succeed based on this flowchart.
As coaches and mentors, we explore all of thesecomponents to ensure that your businesses grows.