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Danger: 10 Warning Signs of Trouble Ahead for Your Business

By Bigg Success Staff
03-19-08

Bigg Success in Business

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We’re told that diagnosing a medical condition early greatly increases the chances of successful treatment. The same is true for your business – seeing the warning signs early gives you the opportunity to solve minor issues before they become major problems.

Cash to a business is like blood to our bodies. It has to continue flowing or we won’t survive. The bottom line is that you can’t run out of cash. So you have to know how to diagnose and treat the source of the ailment before it spreads.

With that in mind, here are ten signs that your business may be heading for trouble:

#1 – Lost market share
Your sales may be growing, but your share of the market may be falling. Market share is precious – among other things, it provides leverage to raise prices as your costs increase. As competitors enter your market, you have to work even harder to maintain (and hopefully increase) your share or your business may get into trouble.

#2 – Declining customer counts
Your sales may be holding steady, but fewer and fewer people are making purchases. Your remaining customers are spending more, possibly because of price increases. You have to find a way to attract new customers or your business is headed for trouble. 

#3 – Low repeat and referral business
You need a healthy percentage of repeat business because it’s much less expensive to keep a customer happy than to get a new one. It also shows that your product or service is still meeting the needs of a core base of people who will refer other people to you. If your customers aren’t coming back, your business may face trouble.

#4 – Declining sales

If your sales are falling, you’re definitely headed for trouble. It may have nothing to do with you – it may be your industry that is experiencing trouble. Isolate whether it’s a problem with your business or the industry as a whole to know your best strategy.

#5 – Disproportionate sales to a small group of customers
Picture this extreme situation – all of your sales come from one customer. You’re totally at the mercy of that customer. It’s like being an employee without the safeguards that go with employment! Generally speaking, if more than ten percent of your sales are to one customer, you may face trouble at some point.

#6 – High employee turnover

When you lose employees, customers are affected – they deal with less experienced people who don’t know your business or the customer’s needs as well as long-time employees. The costs of training people so they’re fully productive are also significant. If you can’t retain employees, your business will likely face trouble.

#7 – Costs rising faster than sales (declining profit margins)
Costs rise for a number of reasons. As your sales rise, so will your costs. If they don’t, why do you need that cost at all? So rising costs are expected. However, costs that rise faster than sales means you will face trouble at some point because you’ll have less and less profit for each dollar of sales. 

#8 – Disproportionate purchases from one vendor

You don’t want to be dependent on any vendor for purchases in any category. That gives that vendor too much leverage in your business. They’ll be able to pass on costs to you that you may not be able to pass on to your customers. If you don’t have a diverse base of vendors (or at least a back-up plan), your business will probably face trouble sometime.

#9 – Unwarranted increase in receivables
It’s great to make sales, but not if you don’t get paid! That’s worse than not making the sale at all because it costs you money to make a sale. Slow paying customers also create problems because you can’t pay your bills with receivables. If you don’t control your receivables, your business may be headed for trouble.

#10 – Unjustifiable inventory build-up
Depending on your business, inventory may be even less liquid than receivables. First, you have to sell it; then you have to collect on the sale. Inventory that’s not turning over is dead-weight. So if your inventory is building up too fast, your business will likely experience a cash crunch at some point.

Hear today's lesson and laugh on The Bigg Success Show. 

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Help – My Spouse Spends Too Much!

 
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Bigg Challenge
We received an e-mail from Diane, one of our newsletter subscribers. Diane says her husband has a passion for electronics and their credit card debt just keeps rising. She wants to know how to confront him and get their family finances back in order.

Bigg Advice – 4 tips to stop the bleeding without getting bloody

#1 – Plan for a conversation, not a confrontation.
You want to solve the problem, not have an argument. So use the word “we” frequently and “you” infrequently. Now that may be tough when you’re not the spender. If it’s easier, talk about the “situation”, so you remove yourself, too.

#2 – Make it an event.
Gather up any needed information and go out for cup of coffee or a very inexpensive dinner. This signals that you’re not planning on arguing, so your husband’s defenses will be lower. Find a place that’s private and doesn’t have a lot of background noise, so you can hear each other.

#3 – Agree to this rule, “Pay today or say no way.”
Repeat this rule out loud to each other, over and over again. This is where you have to start. Stop the future bleeding today so you can focus on the problems from the past tomorrow.

Saying it is one easy, doing it is hard. If your situation is really extreme, put yourselves on a cash allowance and agree what expenses that covers. If it’s less extreme, you can use debit cards that draw on separate accounts – one for you, one for your husband.

#4 – Create a fun account.
Set aside an agreed percentage of your incomes into this account. IF, and only IF,   you’re able to pay all of your other bills in full, THEN you get to spend this fun money.

So if you’ve met your goals, your husband gets bonus money for the gadgets he wants. By the way, you’ll get bonus money, too. This is how you get his “buy-in” and keep him from going into withdrawal, which is crucial because you can’t do it alone.

Don’t think you have to be debt-free to trigger any bonus money. You just have to see a reasonable level of progress. Sometimes a small investment in rewards pays bigg dividends.

For example, you may agree that when you’ve reduced your debt by 25 percent, you’ll draw down 10 percent of your fun account.

As you get your financial house in order, check out our article on 206 the five piggy banks]. This will help you keep it in order.

Thanks, Diane for sharing your bigg challenge. We wish you bigg success!

Do you have a bigg solution for Diane? Share it with a comment.
Are you facing a bigg challenge? We’d love to help!
E-mail us at bigginfo@biggsuccess.com.

We don’t know who originally came up with our bigg quote today, but we sure like it!

“Between work and family, I’m really not spending
enough quality time with my money.”

So give yourself time to get to know your money so it can get to work for you!

Next time, since it’s leap year, we’ll look at leaping from place to place. You can see the world while you work! Until then, here’s to your bigg success!

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How To Get Your Customers To Finance Your Business

By Bigg Success Staff
01-18-08 

Bigg on Small Business

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You either treasure your customers or you go out of business. Ultimately, customers pay your bills, one transaction at a time. In addition to that, customers can finance your business.

Of course, all industries have standard protocols within which you must remain. Or do you? What if you thought creatively? What if you could find a way to win customers and get funding for your business at the same time?

Look at related industries for ideas. Do they follow the same practices as yours? Talk to your customers. What would entice them to consider a creative payment arrangement?

It may be that the customer helps finance your business by the strength of their credit and the commitments they have given you. You don’t care where the money comes from … as long as it comes!

4 ways customers can get you money fast, even if you have bad credit.

#1 – Customer deposits
Wouldn’t it be nice if your customers paid you in advance? Many businesses operate under this model, if you think about it! Even if only a portion of your revenue is prepaid, wouldn’t it make a huge difference to your cash flow?

A marina owner we know employs this concept. One of his primary sources of revenue is dock rentals. He offers his customers a huge discount if they pay for their entire year’s rental a year ahead. Most of his customers take advantage of this offer. He never worries about cash flow.

#2 – Purchase order financing
What if the customer isn’t willing to pay in advance? You may still be able to get funded upfront by using their purchase order as collateral. This won’t work for just any customer – they need to be a company with good credit. 

To turn this pre-receivable into funding, your purchase order must pass two tests. First, it must be non-cancelable and verifiable. Second, you need a gross profit margin of at least 20 percent.

This is not cheap financing – expect a discount between four and seven percent of the purchase order amount. However, isn’t 93% of an order better than no order at all?

You’ll need to pay your purchase order financier off once the order turns from a pre-receivable to a receivable. That’s where the next source comes in.

#3 – Factoring
If you accept credit cards, you’re familiar with the concept of factoring. You get paid now by a financier who gets paid by your mutual customer later. Factoring is only slightly different. 

Factoring can work in a number of ways – let’s assume that you want to completely outsource your credit and collection process. This is expensive money, but you don’t have to worry about payment. The factor takes care of it! You’ll need customers with good credit ratings.

Depending on a number of factors, expect a discount between one and fifteen percent of the invoice amount. Sounds expensive, doesn’t it? However, you won’t wait for your money. You don’t need a credit and collections department. You won’t write off any bad debt. Is it starting to sound reasonable?

#4 – Strategic partnering
What if your customer became your partner? This arrangement has worked for a lot of businesses. Be careful because your relationships with other customers may be affected.

We know a man who owned a specialty printing company. His largest customer was a fundraising company – they sold goods through organizations wanting to raise money. His customer wanted to offer a new product that required special equipment. He negotiated for them to pay for the equipment in exchange for a royalty on all sales produced by that equipment.

The customer effectively got a rebate on all their purchases of that product. Plus, a participation in sales from the machine they bought. The owner had a whole new profit center, with no financial risk.

So look to your customers if you need money for your business. You might get paid even before you make the sale!

How have your customers financed your business? Share your bigg ideas with us!

Hear today's lesson and laugh on The Bigg Success Show. 

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