Most small business people start a business without any idea of the true challenge they are facing. I felt like that when my first child was born. Being a good Dad or Mom is lot's of work. You constantly change and adapt your parenting methods as your child grows. The same can be said for a small business. A small business will challenge you in ways you never thought or imagined. As a CPA to many successful businesses, I find that there isn't any one, two or three keys to being a "great" small business person. There are many keys and for each person how they are applied is different.
There are however some fundamental issues you need to watch. I will start with three basic often over looked business essentials.
Cash is King
Cash flow is one of the most critical components for success of your small business. Without cash, profits are meaningless. Many profitable businesses on paper have ended up going under because the amount of cash coming in doesn't compare with the amount of cash going out. If you don't exercise good cash management you may not be able to make the investments needed to grow or compete with your competitors, or you may end up having to borrow money just to pay day-to-day expenses.
When we help clients with cash flow issues, we look at many factors. Sometimes businesses don't have the right debt matched with their business. For example, lots of cash is tied up purchasing equipment and buildings. Slow moving inventory is not being turned over. Receivables are slow in collections. Products aren't priced right. There is no one answer to cash flow issues, but every small business owner must pay attention to cash.
More than 50% of your revenue coming from one client
At first, it sounds great. But then you realize you are at their mercy and pretty much just a sub-contractor to this much larger business. Whenever you have one customer so big that losing them would mean closing up shop, watch out. Banks don't like concentration of customers. They see this as a huge business risk. So what do you do?
Diversify your cliental. Usually a big customer means lots of profits. If that client is not profitable, begin scaling back the less profitable work or increase the price. Use the extra cash to build a marketing program. Attack this with great urgency because you are one phone call away from not being able to pay your bills.
A major marketing issue is inconsistency. Consistency is very important, but many small businesses shut marketing down when they are overwhelmed providing their product or service. Never, ever, ever stop marketing. You are killing your business when you do this. Let me explain why!
Getting a marketing program up and running is like launching the space shuttle. Have you seen how much fuel it takes to launch the space shuttle? Lift off takes lots of time and energy. The same can be said for your marketing program. Once your marketing program is in "orbit", it doesn't take as much energy to keep it going. But when you shut it down, it begins to fall out of orbit. It takes lots of energy to fire it back up and reestablish the orbit you were once in. Wouldn't it be better to keep your marketing program flying along and spend that energy fixing your production issues?
Next week we will continue our discussion of "Business Essentials".
Our tax season is in full swing. Our turnaround time on tax returns is pretty quick once we receive all of the information we need to begin preparation. We are taking new clients this tax season, so please refer your small business friends. We will take care of them so well they will thank you every time they see you. We may even save them so much money, they will take you on vacation with them!