Is your business dying from exposure?
There is no doubt in anyone’s mind that a person can die from exposure to the elements. Caught in the desert without water, or in the snow without shelter. Both have been the script of many a Hollywood Movie.
But businesses can also die from exposure in several ways. And in this article I’d like to explore these and provide the business owner with some practical tips on how to avoid this fate.
Many years ago, I was sitting on a lounger by the pool in Bali enjoying a ‘0’ birthday with family. A ‘0’ birthday is a bit of a tradition when one of our extended family has a 30th, 40th, 50th and so forth they get to choose a destination and we all travel there for a break.
I opened the copy of the Aussie paper and found a full page ad announcing the recall of 1500 products in the natural health market. One of those products was produced by our client. A client who made up 50% of our revenue at the time.
Overnight, our little consulting business was half the size.
A lesson in being overexposed to one client.
From that experience, we put in place a policy to have no more than 20% of revenue with one client, and it has served us well.
There are a lot of small businesses out there who rely on one large customer for a significant percentage of their revenue. So this is a call to action for you to consider this and work out your own plan to handle it.
Do something before it is to late, and learn a lesson from my experience.
Actually, this same situation prompted another lesson for our client, which was not on the customer end, but on the supplier end.
They of course, also lost a lot of revenue that day. At the time, the product in question was growing strongly in pharmacy. And overnight all product on the shelves, and in the warehouse had to be scrapped.
A business can be exposed to too few suppliers as well as too few customers.
Do you have a product business where you buy from just one manufacturer? Is this a risk for your business? Should you split your orders between 2 or more manufacturers just in case one of them has a problem?
Finally let’s talk money. In our surveys of over ten thousand business owners, we have found that cashflow and money is the biggest challenge for the largest percentage of business owners.
Their exposure is in a number of areas, where the symptom is ‘not enough money’ or ‘not enough cashflow’.
The causes of this disease or symptom are as follows:
— poor understanding of what money in their bank account is actually theirs
— poor invoicing procedures
— poor collection procedures
— poor quality control
— poor pricing strategies(not enough margin in the sale)
All of these end up exposing the business to poor cashflow.
And the solution is fixing all of the above.
I trust this short article has given you some food for thought about your business and risks and exposure.
Look at your revenue, look at your suppliers, look at your money management and you will survive.