Monday, 3 October 2011

Your Best Customers

Sometimes your best customers are not your best customers! There is a difference between turnover and profit, and how many extras do you do to keep that big customer happy?
I went to see an engineering company with one major customer accounting for 85% of the turnover. They were taking 90 days to pay I was told, instead of the agreed 60 days. When we looked at the sums they were actually taking 120 days.
The engineering company was struggling. No money was spare, and the owners had stopped taking a wage. The trade accounts were maxed out and a lot of time was spent juggling the creditors. When I asked why we didn't go and talk to the major customer I was told we could not upset them and we did not want to rock the boat.
After some discussion a nervous business owner went cap in hand, touching the forelock, to see if he could get a payment.  They said 'We wondered why you hadn't asked for a payment. This cheque has been on the desk for a week!'
Business turnover is not profit
Another client was a transport company. An old family firm was pouring money into the company each month to keep it going. They were accepting contracts which meant they were driving from Cardiff to London for little more than the price of the fuel. The argument was that this would keep the driver busy and keep them on the road. As I have described it you will see immediately that there are other costs - for the lorry, but also the admin, the fixed costs, the finance, and all the rest. Madness! An old family firm was being mismanaged into the ground.
Little jobs for little companies
Plenty of small firms take on jobs that make me wonder. If you are a landscaping firm or an electrical contractor  for example you should be getting work because your sign written van is parked outside. That big 10 week job is only giving you the security of having work for that time. In every other respect it is doing you a disservice. You probably discounted your price for quantity of work. You may have underestimated the travelling costs. You may have to settle for materials before you get paid. If it turns to a bad debt you have one big bad debt you can't handle. You may have to cope with wages during that time. All that can be handled if you have made suitable arrangements. However your van is stuck in one place for all that time and off the radar. Your ability to generate new work is stymied. Your Bank account will have major peaks and troughs. Your profit margin is likely to be lower. Altogether, smaller jobs are better.
So look carefully at your customers. Are they really your best customers?
Bob Shepherd Associates will help you define your strategy and sort out your priorities. A little forethought goes a long way.

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