Small business biggest challenge

[ians]

What is the biggest challenge for the survival of a small business?

Capital.
Business plan
Turnover
Customer base
blah blah blah ...the list just goes on and on

My opinion, customer payments, I am not talking about the R100 000 payments, they will bust you within a couple of months if not paid, I am talking about those little ones.

You ask why, I have been going through some changes in past few months, looking into ways to become more effective, spending less, trying to find what it is that affects my business the most and how. Today I came up with one of the biggest issues and what affects my growth or what could eventually cripple my little business. Some might say but that's what an overdraft facility is for...mmm your overdraft can only carry you for so long.

I have been winding up the sole proprietor operation, and boy was I in for a surprise with the amount of money I have had to write off and outstanding debts.

Going forward now with the CC I decided not to make use of an overdraft facility and I can now see why having an overdraft tis not always a good idea in a small business, (this is my take on it)you tend to run up the overdraft and sit there with this debt over a period of time which just never seems to go away, much like a credit card ( that's why my credit cards have R500 limits) The reason for this, those little outstanding payments which over time end up restricting both expansion and general day to day operation.

What I have found is that R500 or R1200 little amounts start adding up, you think, well I will just write them off, but every month there is a little more and a little more, until eventually your overdraft is maxed out or you apply to increase you overdraft and because you are turning over xxx amount the bank increases it. The problem is that it can only go on for so long then it will restrict your operation.

So how do you overcome this problem, I would like to hear from other small business owners how you overcome this problem.

An interesting fact, not one of my customers who had companies when I started my sole prop operation over 20 years ago is still operating, every single one of them has gone bankrupt or sold the business.

Maybe that what I should strive for this time around, to build the CC to sell.

[Justloadit]

Just remember to sell a business, it must be able to run with out you at the helm. If it can not do this, then it is not salable, as the person buying it will have to run it the way you do, and simply this is not going to attract any buyers.

[wynn]

Depending on your markup and number of bad debtors, there is a break even point where it is not feasible to give credit!

Assume a 50% markup on the same item or service, if one in three don't pay then you are just wheelspinning for no return at all, and the figure climbs exponentially for every percentage less than 50%

At 20% markup you need to do five more transactions to break even so that is a loss of six potential deals.

Sometimes it pays to just ignore the deals that require credit and concentrate on cash deals.

[pmbguy]

I share your frustration. I also have a small business (Office Automation) and I also have issues with cash flow from time to time. In my particular case I have a handful of big businesses that have a 2 month payment policy. So I get a large order for equipment from them and then I have to wait for 2 months to receive payment. My suppliers are all 30 day accounts, some even cash. I manage to negotiate with some of my suppliers to wait until my client pays me, but this only applies to a few of them, most of them won’t budge. My clients with this payment policy (2months) are huge business and they simply don’t change their payment policy for nobody. I tried to negotiate terms but they just flat out refuse. I remain polite with them about the matter as not to compromise our relationship, But this really adds unnecessary stress and it makes me mal.
Personally I don’t turn down business because of this delayed payment policy when they place very large orders, I will rather empty my savings account or sell my gold, but never turn them down. So I won’t turn down business because of cash flow, but I will outsource (if possible) the job if I feel I can’t provide the quality service I would like to provide for that specific client. That way I don’t lose face and still made the dollar.
Having said all of this I still feel that it is not fair that some of these big guys don’t pay 30days like the rest of us mere mortals

[Justloadit]

Try getting as 60 day account from the big corporates, they tell you to take a hike, just not fair.
I am fortunate that my client is 30 days, but earlier this year, some months were 60 and 90 days, boy did I sweat blood. Anyway it seems they are back on track. My problem is it takes me 8 to 12 weeks to complete the orders, and my 30 day account just disappears, making the financing of the business a bit of a night mare. Fortunately my biggest supplier gives me 60 days, which helps. I never abuse this and am always in contact with my supplier, just in case I need more from him.

[IanF]

Our rule is first order is at least 50% with the order. Balance on delivery. I have a standoff with an old customer who wants us to do a calendar design and then they will pay a deposit, she went bankrupt a few years ago and owed us R15k. Now her terms are payment with order. I would rather lose her as a customer than take a risk.
Then we did some printing for a bank on Thursday and quoted them cod, they paid cash when we delivered.
The more confident you sound and feel when discussing your terms the more they are just accepted.

[roryf]

We work on the principal that if in doubt don't supply.Even if the deal looks good,it is just not worth chasing bad payers.We have some accounts and they are all good payers.The bad payers go onto a COD basis or they must pay upfront and if they don't like that they can go elsewhere.Harsh but it works well for us and every year our auditors are suprised by us having no bad debt.

[adrianh]

I agree with IanF, if it is custom work then the client must pay 50% up front. You simply say that you have to cover the cost of materials or whatever. I no longer allow any customer to leave the store without having paid in cash or EFT. I will not let anything leave my sight unless the money is in my till or has cleared in my bank account. If they don't like it then they can take a hike. Not only does giving credit to customers create a nightmare to get the money in, it also caused a huge amount of admin, admin that you don't need as a small business.

My customers sometimes complain about price and I simply tell them that the price is what it is, if they keep on complaining then I tell them that they need to learn to save and failing that they should take up a hobby that they can afford...I simply don't care for people's nonsense anymore, I will give them a 10% discount if they take a 10% lowering of their salary.

Whenever a client starts whinging about getting the best price I prepare to send them to the opposition, if they are not willing to pay a fair price then they must go elsewhere.

Another thing about COD. I don't get to pay my electricity off over 3 months, nor my petrol nor my milk, so why should a client get terms on a R1,500 job, stuff it, they have to pay for all the stuff that I mentioned in cash so likewise they should pay you in cash.

I turn business away very easily, I have a motto that I live by "A quality service and product for a quality customer" if the customer looks even remotely dodgy or looks like it is high volume low profit work or he is going to give me a hard time I will far rather give him a miss. There is nothing wrong with turning work away, I send all the ahole R 10 tyre kickers that come my way straight to the opposition!

[CLIVE-TRIANGLE]

Along these lines, a number of companies (big and small) take settlement discount as a matter of course and whether or not it is your payment terms. Heck, some even take it when they pay late!

I'm interested to know who else experiences this, and do you allow it.

I turn business away very easily, I have a motto that I live by "A quality service and product for a quality customer" if the customer looks even remotely dodgy or looks like it is high volume low profit work or he is going to give me a hard time I will far rather give him a miss. There is nothing wrong with turning work away, I send all the ahole R 10 tyre kickers that come my way straight to the opposition!

I have a friend who frequently has to tell a prospective client that "we have just reached my 'f#$k off' price!"

[ians]

It depends on the job, some customers you quote, request a deposit and progress payment and final when completed. If only they where all like that, the ideal business plan.

[Miro Bagrov]

I think one of the major challeneges to small businesses is a lack of access to support and management advice.

Everyone would rather hire a cheap worker or two, and try to deal with all the issues mentioned above (capital, expense control etc.) by themselves.
Business owners are afraid to involve anyone else in management because they think someone will steal their business ideas (or other reasons only they know).

Businesses get stuck in being small because they spend 100% all their effort in operations and 0% on growth. That's why small stays small.

[ians]

I agree, and guilty of exactly that.

I don't agree, with people trying to steal business ideas, I have an electrical business there is no idea to steal, it is simply I do electrical work.

I have pointed this out on many occasions, it is more about letting go and trusting other people to do the job as I would do it.

I know, I have a saying in my business "if you want something done right do it yourself" this sentence is one of the biggest restriction in most small business growth.

You have to let go and trust that other people will do what they are paid to do, this is where a good supervisor, manager comes in, but if you are too busy "running the business" who will manage the staff and make sure things are done right?

What I see in many a small business is a person who has qualified as an artisan or something and feels he can make a go at it in business. The mistake is becoming a good electrician or plumber or even accountant for that matter doesn't make you a good businessman.


The day you decide to start a business there are certain rules

Rule no.1...make sure you are a good businessman.

there are a lot more, if you google them, there are studies and thick books which could take you a life time to read, yet the fail rate of business is a lot higher than the success rate by a huge margin, maybe too many people writing books and studies and too little putting them to practise.

Which brings me to another point, how many people can tell me how to run your business, I am sure many of you can relate to this especially the ones who have never actually had their own business, but they can tell you how to run your business and what you are doing wrong

[IanF]

Along these lines, a number of companies (big and small) take settlement discount as a matter of course and whether or not it is your payment terms. Heck, some even take it when they pay late!

I'm interested to know who else experiences this, and do you allow it.



I have a friend who frequently has to tell a prospective client that "we have just reached my 'f#$k off' price!"

The trick is not to offer terms. When I get the call saying if I pay now can I take discount I say no rather pay later, then then pay 10 days later with no discount. The price for them is looked at to see if it is still worth while. I love the F$%#k off price that is reached quite often dealing with Bridezilla's and changing artwork.

[adrianh]

Bridezilla - Yeah, I can vouch for those...I am yet to come across a more wasteful painful breed.

[Justloadit]

I sometimes tell my potential customers, that I can not afford to do your job, but thank you for asking.