When you start out in small business pretty much every small business owner has the perception that everybody is their customer. In fact taking on this strategy can be the death knell of your business before you really get started. The key secret to small business is to carefully choose who you want to be a customer. Do not get trapped into believing that you have to have everyone as your customer.
There are many reasons why you want to choose your customers, rather than they choosing you. One of the key reasons is money. Having too many companies that do not pay you within an acceptable period of time can in fact put such a financial burden on your business that they can bankrupt your business. Let me explain …
I had a number of government clients a few years ago which had a policy of choosing when and if they were going to pay. These government clients used purchase orders to buy training from our company, but just because they could, they decided that they did not want to pay because the whole purchase order had not been completed. So even though one person out of 15 had not completed their training and had been sent overseas, they chose that they were not going to pay the $14,000 bill.
Fourteen thousand dollars to any small business is a massive amount, add onto the fact that we had to outlay money for these courses including wages, catering and manuals. The consequence of this organization deciding not to pay put a huge financial burden on my business. I should note that this client was not dissatisfied with our training, which was far from the truth, the person in charge simply decided that they were not going to pay. Some government bureaucrats and large corporation managers do this just to show that they have power.
Anyway, after 9 months we did finally get paid, however, that training actually cost us more than $14,000 by the time we accrued things like penalty payments on products we purchased and interest plus legal fees in recovering the money. In the end I learnt a very important lesson that you need to be very careful as to whom your customers are because they can do a huge amount of damage to your cash flow and can put you into huge debt just to survive.
Let me give you another example of a family member who recently experienced the same situation …
Certain members of my family decided they wanted to try their hand at the trucking industry. They purchased a truck and got into a contract with a large freight distribution company. Essentially, they ran into trouble within the first few months of starting their business, simply because they chose to have just one client and the contract they entered into with this client allowed the freight company to withhold payments for upto 3 months before they got paid. This has cause this family a lot of problems because without cash, you can not run your trucks cause you need to fill up on Diesel. Not being paid for over 90 days means you can not buy fuel and as such you can not make money.
The one thing I have learnt from small business is that I like customers who pay cash upfront before the service or product is taken out of your store. I also prefer customers who have a reasonable expectation on service.
You would think a car cleaning business would be a relatively simple business to run with very few complaints. I kid you not; this is a nightmare industry where some people have some unreal expectations so when we are on a recruitment drive for new customers we choose customers who have four facets –
1. Want Regular Cleans
2. Have kept their cars relatively well cared for
3. The cars are no older than 6 years old
4. They pay cash upfront
In fact, when it comes to our car cleaning business, or all of our businesses we actually interview our customers before we enroll them as our clients.
Here is the reason why we have chosen those customers above for our car cleaning business. Any business where you get repeat business is always a boon, because the long term customer value is always more than somebody who just wants it cleaned once. One thing we have learned about our customers is that those who want to get a regular clean have more realistic expectations than those who only get their cars done once or every now and again.
Customers who keep their cars relatively well cared for means the amount of work to maintain it is much less than those who do not and it means less work on our behalf and better profit. The third facet, we like cars that are no older than 6 years old. Cars that are older than this usually have a poorer paint quality, simply because the paint has faded and most people when they get a car detail think their car is going to look brand new and if your paint work is terrible well there realistically is not much we can do cause car detailers do not respray cars or do that sort of paint work. We can only work with what we have. The fourth facet is they pay cash upfront.
In small business, cashflow is everything. Without cash you cannot pay your bills. If you have a good solid cashflow then you will be making a profit. A small business without cash will be placed into receivership very quickly.
Look the bottom line is that small business is really hard and to make it easier you need to choose customers that have the following facets:
1. Pay Cash Upfront or By the Due Date
2. Have Realistic Expectations of your products and services
3. Want to Buy From You Regularly
If you have customers that have these facets then you have a good chance of surviving small business. The mix of customers you have is something that you have to manage and review on a regular basis to ensure that you do not build a customer base with to many customers without all of these facets.