Monday, October 3, 2011

Five Step Action Plan To Remove Trouble Spots In Your Business

In an ideal world your small business should operate like a well-oiled machine without encountering hiccups. However, as we all know, this is not the case in real world. Problems could and do arise from time to time. We are not talking about transient problems that can be fixed easily and quickly. We are talking about structural changes that occur very slowly and can go unnoticed for a long time. These are the problems that can do a great harm and eventually put you out of business.

To avoid this unfortunate fate we recommend you implement a three-step process. (1) Implement systems to provide you with warning signs about potential issues. (2) Interpret the warning signs to find trouble spots in your business. (3) Take appropriate actions to remove trouble spots.

We talked about the warning signs earlier. In the later post we showed how to interpret these warning signs This post will focus on what actions you can take for each type of the warning sign so that you can take care of the trouble spots and get your business on the right track again.

Sales trends

As we mentioned in the previous post declining sales could result from number of possible reasons. It may be difficult to pinpoint exact reason for this, however there are certain actions you can take immediately to find the causes and reverse the trend.

  1. Talk to customers and get their feedback via surveys and informal stories. This will tell you a lot about what could be hurting your sales.
  2. Focus on improving customer service. Majority of the time, the sales decline is a result of your customers getting pissed with your service.
  3. To ensure your short-term profit doesn't take a hit while you are working on long-term fix you should also look at reducing your discretionary expense. Be careful not to hurt long-term viability of your business while doing so.

Average Ticket per Customer

  1. The best course of action you can take to increase average ticket per customer is to increase cross selling and upselling. We showed how you can do this in an earlier post.
  2. Also, look into introducing new products to generate excitement and reduce the use of coupons and discounts.

Number of Repeat Customers

Declining number of repeat customers is a sign of serious trouble and you have to deal with this right away lest you risk losing your business.

  1. You need to get feedback from the remaining customers to find out why others are leaving.
  2. In addition, focus on improving customer service and product quality.
  3. Reduce your spending on marketing while you are fixing these fundamental problems. No amount of marketing will help until you have taken care of these fundamental issues. Look at our fundamental rules of marketing to understand why.

Gross Margin

There are several ways to improve the gross margin.

  1. Negotiate higher discount from your vendors by finding alternate vendors or changing purchasing tactics.
  2. Reduce the use of coupons by competing on customer value rather than price.
  3. Upselling and cross selling can also help increase the average price per customer and hence gross margin.
  4. Finally, change your product mix to sell higher margin products.

Outstanding Receivables

  1. You need to start putting a squeeze on the vendors who are not paying your bills quickly by sending them notices more frequently. If the situation does not improve, look into hiring a collection agency to collect on your behalf.
  2. While you are working on collecting past dues an obvious action to take is to reduce the credit terms for these delinquents.
  3. If the increase in receivables is a result of bad economy you may have to just suck it up and extend the credit terms till situation improves. At the same time, try to find alternatives to survive and sustain your business.

What other actions would you recommend to us and fellow small business owners?


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