We ran lean so we could take cash out for personal needs. Recently, we’ve seen a significant drop in net income. Think we need to spend money to get sales profitably moving forward, but we’re going to be short on cash. What should we do?
Thoughts of the Day: Building a successful business takes planning for good times and for bad. Focus on sales, profitability, and marketing first. Look for quick turnaround opportunities to boost cash from existing work and customers. Going forward, remember that if you take care of the basics of the business, it will take care of you.
Business owners are great at playing offense, not so good at defense
When things are good, they take advantage of the opportunities and tend to ignore the things they need to do to prepare for when things don’t go well. When things get tight, all their energy goes to short-term planning to turn things around. And that can be incredibly disruptive to the business. So my best advice here is, fix the root problems, take good notes, learn from your mistakes so you don’t end back here again.
Instead of looking back at where you’ve come from, focus on where you’re going
What does a healthy company look like? Make a list of changes in each area of the business. Since you say you’re good at keeping expenses down, look at whether you’ve cut back too much when it comes to research and development of things future customers will value. Check on your technology investments – spending to be more efficiency.
Set goals for activities that will drive additional revenue
Follow up with existing prospects, improve conversion from prospect to client, add new prospects to the database, and measure ROI on every marketing effort. Ask questions about sales profitability. What to do to get more? How to divert people from other activities to increase sales efforts and profitability? How to add on different types of customers and products? Are there services out there that you can purchase and resell at a markup without too much risk?
Think about what role marketing plays in bringing in action-ready clients. Now may not be the time to invest in redoing the website, if it’s functional. Instead, focus on near-term lead generation activities. Craft compelling announcements about what you do. Hold gatherings for current clients to talk about what you do and what else they need that you could do. Invite prospects to join the gathering, so they can hear success stories from real customers.
Be careful about taking on additional debt
It will have to be paid off in the future with after-tax dollars. And that could lead to more problems down the road. If you do pursue loans, make a plan to pay them off within a few short years.
As you move things forward, build up reserve funds
Figure out how much you need for personal needs, to pay off debts, pay taxes on profits, and reward employees with year-end bonuses, growth funds for expanding, R&D, and reserves. That’s your true net income goal. Now work backward from net income to figure out how much you need in sales profitability to hit that goal.
When you get back to building up a reserve fund, keep it inside the company. Pay taxes on the profits, but set the money aside in company accounts, rather than taking it home throughout the year. Set a goal to get one month of overhead in savings. When you get there, up the goal to three months, and finally to six months in savings. That will keep your company safe long term.