Back in the 1970s, fresh faced graduate Fred Smith founded a new delivery company called FedEx with $4 million of inheritance and $80 million in loans and investments.
Just three years later, Smith’s fledgling company was floundering.
With just $5,000 in the bank and a fuel bill totalling $24,000, the future wasn’t looking bright.
So, what happened?
In a moment of madness (or business brilliance), Smith grabbed a taxi to the airport, bought a ticket to Las Vegas and headed straight for the nearest blackjack table. At the end of the night, he’d quintupled his stack and won enough cash to keep FexEx running for another month.
Fast forward a few decades and FedEx has grown into a global delivery powerhouse, employing over four hundred thousand people and processing 13 million shipments every single day.
Now, the point in this story isn’t to legitimise gambling as a fundraising tactics. (Seriously, don’t try to copy Smith’s success.)
The point is that even exceptionally successful companies go through hard times and have to carefully work their way back to profitability.
This article will share four pieces of advice for fledgling businesses. If you watch out for these issues, it’ll be easier to keep your business on the right track and follow FedEx all the way to global success.
Don’t ignore credit control
Startups and small business really struggle with asking their clients and customers for payment.
This might strike you as odd. Small, cash-strapped businesses not asking for payment? Really? Well, yes and there’s a very simple explanation for it.
Small businesses usually have super small workforces and because they have small workforces, staff members usually end up taking on multiple roles. Perhaps the most common roles I see doubled up are sales and credit control.
It’s just two stages in the same process so it makes sense to stick the roles, right? No.
Having one person spend hours building a relationship with a customer and closing the sale then asking them to chase them for payment makes for a pretty confusing relationship.
Often, sales staff will ignore credit, feeling that their job is already done. Left unchecked, poor credit control can, and will, wreck your cash flow and potentially your business.
The simplest solution for the problematic credit control is to separate the two roles entirely. Task one employee with sales and another with credit control and keep those roles separate.
However, many small businesses simply won’t have the budget to create a dedicated credit control role.
For these businesses, there is some general advice for actually pursuing debts.
First, when you are writing credit terms, make them clear, strong and consistent. When a customer agrees to your terms, they should know exactly what is required of them and how the agreement is enforceable.
Second, keep your business at the head of the credit queue. The harsh reality of the business world is creditors who shout loudest and longest tend to get paid first — usually at the expense of quieter companies.
If you want paid first, it’s important to schedule followups with your customers to remind them of any upcoming invoices.
Third, if a customer doesn’t pay their debts, it’s important to take action and not let it slide. The most effective tool you have is also a very simple one — the phone.
Phone calls are very hard to ignore as it’s literally something ringing on your desk. And if you get someone to answer then you’re personally talking to them, which, again, is very difficult to ignore.
Don’t rely on emails or snail mail as your debtors will simply mark it as unread and put it off to another day.
Time for a more technical piece of advice. Forecasts. Forecasts are important and useful tool for virtually all businesses, helping business owners understand where they stand now and where they will be in the future.
Unfortunately, a lot of business owners seem to believe that forecasts are a one-time deal. They set their forecasts back when they write their business plan then never never look at them again.
This is a huge mistake.
Forecasts are a living documents and like all living things need love, care and attention.
As your business grows and develops, you should revisit your forecasts and update them based on what you’ve learned. This keeps them as relevant and as useful as possible.
As for the practicalities of designing forecasts, you should always base your forecasts on past data. If you haven’t hit certain performance metrics before, why would you think you will hit them in the future?
If your forecasts shows unjustified performance, it’s time to revisit the data and produce new forecasts.
Now, you might be wondering why forecasts are actually important and it’s a very good question! What advantage does a good forecast give you over a poor one?
Accurate forecasts give you a much clearer idea of where your business will be in the future, which allows you to plan accordingly. Is there a cashflow problem on the horizon? Do you have enough cash to bring on more staff? And so on and so on.
Forecasts also allow you to benchmark your performance by comparing forecasted sales to your real sales. If there’s a discrepancy between the two, you can isolate the issue and fix the problem.
Prepare for the unexpected
In the world of business, things rarely go to plan. Just think about Fred Smith and FedEx. Do you think he ever planned to rely on gambling proceeds to bridge a funding gap? Of course not!
The reality is that things never run as smoothly in the real world as they do in your business plan. So it pays to be prepared for the unexpected.
Unfortunately, new business owners tend tend to assume everything will run smoothly and budget for the bare minimum.
When something does go wrong (and something will go wrong), idealist business owners suddenly find themselves hurtling towards disaster without the cash or resources to adapt and survive.
The solution is simple. Assess risks and build in wiggle room wherever you can afford it. If things do start going wrong, you’ll be thankful that you prepared for it.
Seek help when things go wrong
When someone starts a business, they often spend the first few years jumping between a million different roles. That breeds this mindset that they don’t need help and can do almost anything they set their mind to.
That mindset works but only up to a point.
If your business starts to struggle, you don’t have the leeway to spend a few months learning about recovery strategies. In a few months, your business might be locked in a downward spiral or even gone already.
The more time you give a business rescue professional, the higher the chances of a successful rescue.
So, don’t bury your head in the sand, don’t double down on risky gambles and don’t flail about when you don’t know what to do. Go get professional help.