Escalating outlays and flatlined revenue can force a business to the emergency room, figuratively speaking. If the cost of materials, loans and labor soars, drastic steps may be needed. Sometimes you can avoid price increases by slashing production costs, renegotiating leases, changing suppliers or eliminating unprofitable products.
But it’s a balancing act. If you begin to charge more, even loyal customers may balk. Some may flee to competitors. Social media may bristle with negative reviews. When price increases become necessary, it’s crucial to keep existing customers coming back. Consider following these suggestions:
Take it slow. Raise prices incrementally. For example, you might increase charges for new customers while allowing existing customers to lock in existing rates. You might boost prices through add-ons, keeping core prices constant. Airlines have mastered this strategy, slowly adding charges for baggage, premium seats and priority boarding.
Time it right. Charge more only when existing customers appear satisfied. Survey your customer base first. If most clients are unhappy, problems should be remedied before contemplating price increases. Don’t boost prices in the aftermath of negative publicity, a product recall or a wave of customer complaints.
Communicate value. Customers want to know what they’re getting in return for increased prices. So amplify your achievements. Emphasize the core value of your offerings. Give them something extra: free gift wrapping, new menu items or service enhancements.
Prepare for the negative. Even the savviest businesses can expect some level of backlash when raising prices. Be honest. If you’re in the business of repairing cars, let customers know you’re raising wages to retain skilled mechanics. If you rely on imported raw materials, emphasize the increased cost of shipping.
Above all, keep on top of ongoing operations. Don’t let dwindling revenue plunge you into an emergency. Call Carl Heinemann, your Chattanooga CPA, we can help.
Early in the year is a perfect time to reassess your business, including organizational structure, policies, marketing and more. Reviewing company costs can also pay huge dividends throughout the year if you can create an expense-cutting plan and stick to it. Here are a few ideas for reducing costs with your bottom line in mind:
Review the lease. Do the terms of your lease still make sense? Landlords like to keep good tenants, so look for ways to revise lease terms to make them more favorable to your company. If you own a building but don’t use the entire space, consider subletting to another business to generate additional revenue.
Reassess insurance policies. It doesn’t hurt to review your insurance needs on a regular basis. The policy you bought five years ago may not be competitive today. Your company may be carrying coverage you don’t need. Discuss existing arrangements with your agent. You may be eligible for trade association discounts or an umbrella policy.
Consider buying in bulk. For some items, such as office supplies that your staff regularly uses, buy in quantity. By renegotiating supplier contracts, you may be able to generate additional discounts.
Do a technology audit. Take a look at what your business uses and what can be made more efficient. Maybe you don’t need an inter-office phone system when all your employees have cell phones. And replacing desktop computers with laptops may help save in energy costs.
Update the schedule. By closing the front door of your business one day a week and asking staff to work longer shifts on the other days, you can often save utility costs and other overhead expenses. Ask your employees for help. They may suggest the perfect cost-saving alternative to the standard workweek, especially if it means saving the business and their jobs.
Rethink lighting. Utilities are often one of the largest expenses on a company’s profit and loss statement. Consider installing motion sensor lights to reduce costs. And solicit staff suggestions for additional savings.
Take cost-cutting measures now to help your company reduce wasteful spending and save big.
Franchise opportunities abound. A solid franchise company can offer a proven business model, staff training, advertising expertise and many other benefits for jumpstarting a business. But whether you’re selling fast food or repairing cars, it makes sense to identify and scrutinize potential risks before you sign a contract. Here’s what to look out for:
Unrealistic forecasts. The company may have highlighted only successful franchisees in booming markets in its sales pitch. Average income can be deceptive, explaining little about how individual franchisees have performed. Rosy predictions based on historical data don’t always pan out. Obtain market research for the areas you’ve staked out, and talk to other franchisees to identify a realistic timeframe for breaking even.
Unexpected costs. Advertising, initial inventory, legal costs, training, ongoing royalty fees — these expenses and many others can tank a business early on. Identify every potential outlay and build a reserve to cover costs while waiting for revenues to grow. When it comes to expenses, guess high.
Unusually high turnover. The Federal Trade Commission requires franchise companies to provide potential buyers with a Franchise Disclosure Document (FDD). Among other important details, the FDD provides contact information for current franchisees and others who have opted out of the franchise system. Talk to these folks about their experiences, both positive and negative. If the franchise company has been buying a significant number of properties from unit owners, take note. Storm clouds may be brewing.
Unfulfilled promises. Franchise companies may pledge the moon, but deliver something entirely different. For example, you may expect the company to use your advertising fees to promote your local outlet. Instead, the company may pump those dollars into unrelated national advertising.
Franchise companies can help you build a successful business. But don’t forget to analyze the details before signing up. Call Carl Heinemann, your Chattanooga CPA, for assistance.
Let’s say that you learn a local business owner is ready to retire. The prospect of acquiring his or her company seems intriguing and feasible. But is it a good investment? And how much should you offer? Here are three steps that will help you determine a company’s value:
Don’t only rely on a third-party valuation. Associations and trade groups in the industry may provide guidelines, often expressed as a percentage of sales or asset values. Valuations based on these estimates are free and, as the saying goes, “you get what you pay for.” A general guideline may work as a starting point, but the one-size-fits-all approach is rarely sufficient to provide an accurate picture of a company’s worth.
Consider using business valuation software. This approach may provide a better estimate because it’s based on more factors. You input asset and income information from the company’s financial statements and/or tax returns into the application, and the software cranks out a fair market value or, more likely, a range of values.
Perform a financial statement analysis. You calculate the company’s book value, the difference between its assets and its liabilities as presented on the balance sheet. Unfortunately, this approach can be misleading, especially if the assets are presented at historical cost. Some assets may have declined in value. For example, inventory may be obsolete or accounts may be uncollectible.On the other hand, the business may own real estate that’s appreciated since being purchased. You may also want to project future cash flows and discount them to the present using an assumed rate of return.
Historical profits, industry trends, competitors, intangibles, customer demand – these factors and many others impact a company’s value. As a result, depending on your resources and interest, you may want to consider hiring a professional business valuator, such as Carl Heinemann, your Chattanooga CPA.
Be aware, however, that the final selling price will likely differ from any theoretically-derived value.
Some losses are inevitable when you decide to extend credit to your customers. That said, unless you are willing to forgo the credit part of your sales, you’re going to have to figure out ways to control your bad debt losses.
How to get a handle on bad accounts
Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect there might be trouble in the near future. You don’t want to crack down on a good customer too hard too soon, yet you don’t want to be taken advantage of by someone who has become unable or is unwilling to pay. The problem is distinguishing between slow pay and no pay.
What you need is an early warning system to detect a credit problem in the making. This can help you stop additional sales to that customer and begin collection procedures in earnest. You can begin building this system by considering these signs that something may be amiss with a account:
Erratic payments. The customer has begun paying erratically, settling up on smaller invoices while larger ones just get older, at the same time disputing specifications or terms.
Poor communication. The customer fails to return your phone calls.
Unavailable information. Your requests for updated financial information are ignored.
Increased credit requests. The customer places jumbo orders and presses you for more credit.
Any one of these signs could be an indication that more account problems may be coming down the line. If you’re concerned about a client account, make it a point to speak to your client directly about the account. It may help clear up misunderstandings about payment expectations.
The waiting room experience can be either a deal breaker or a first step toward long-term customer loyalty. If you subject your clients to stressful and uncomfortable delays in an unpleasant environment, you may lose them forever. On the other hand, a few carefully chosen amenities and consistently applied practices can keep them coming back — even when waiting is unavoidable.
Take these customer-focused waiting room ideas into consideration:
Offer free Wi-Fi. Customers expect to stay connected, whether to chat on social media, answer emails or create spreadsheets. Talk to your internet provider about setting up a guest network that’s separate from your secure internal system. If necessary, increase bandwidth to make internet browsing faster. Post the guest network name and password in plain sight.
Make seating comfortable and clean. Sit in your waiting room chairs for half an hour. Do you feel pain? If so, it’s time to shop for replacements. Ditto if the chairs are stained and shabby. Provide smaller chairs for children and leave plenty of space between chairs so customers don’t feel hemmed in.
Take care with television. Depending on your clientele, consider limited programming that fits your customers’ interests. A hair salon, for example, might offer channels featuring beauty tips. An accounting office might program market updates and world news. If children will be present, keep programming lighthearted. And use closed captioning to reduce noise.
Make it pleasant and efficient. Create a stress-reducing environment by using green plants, natural lighting and landscape artwork. Set tables at an appropriate height for filling out paperwork.
Communicate expectations. When the hostess at your local restaurant says the wait will be an hour, you’re provided with options. You can leave your name, shop at a nearby store, and return later. Provide a similar experience for your customers. If the wait will be longer than originally expected, apologize.
Your time is valuable. Let customers know that you respect their time, too.
You’ve probably encountered your share of challenging clients. They nitpick. They haggle endlessly about prices and hourly rates. They fuss and fume about every aspect of your work. When the project is over and the goods are delivered, they pay late — or not at all.
How do you screen out time-wasters and garner good clients for your business?
Clarify what a “good client” looks like. Although each business will establish its own parameters, at a minimum you’ll want to consider the range of client budgets you’re willing to accept. Say, for example, you run a roofing business. You may decide that projects under a certain budget aren’t worth your time and that projects above a certain size exceed your firm’s level of expertise. Or, if you’re in the business of website design, you might specify the minimum level of technical knowledge you’ll require.
Communicate parameters clearly. Use your business website to explain the types of customers you’re looking for. If you plainly state, for example, that you only service clients in a particular geographical area, folks outside your region will tend to filter themselves out. Of course, you can always make exceptions. But the more details you can spell out, including specifics about your pricing, the more likely you’ll narrow the field to the best potential clients.
Consider a potential customer’s reputation. Depending on your industry and long-term expectations, you may want to check out a prospective client before taking on a project. Make discreet inquiries of others in your industry group. You may find it helpful to know if the client has been willing to take feedback on past projects, if they respond in a timely manner, or if other businesses have complaints about them.
Good clients form the backbone of any successful business. Be diligent to find and keep the best ones.
Business clients often prefer to be billed for purchases rather than paying upfront. That means you may need to establish receivable accounts for most business-to-business transactions. Unfortunately, it also means cash flow complications or worse if you take on commercial clients who don’t pay on time, or at all.
Luckily, you can minimize the risk of delinquent accounts by creating strong payment and credit policies. Consider these four methods:
Credit eligibility standards. Research new clients by purchasing business credit reports or contacting credit departments in your industry. Before extending credit, confirm that they have made good on previous obligations.
Credit terms. Consider industry practices and the creditworthiness of individual customers when crafting your policy. In some industries, new customers might start with a “net 30” standard, allowing them 30 days before payments become delinquent. But one size doesn’t necessarily fit all. Your best customers may warrant longer payment terms, such as 60 to 90 days. Some industries have their own billing practices, such as the construction industry, where customers are usually billed with a series of invoices.
Clear documentation. Requirements for purchase orders, contracts, credit applications, sales agreements and invoices should all be documented and made clear to the client. The policy should include examples of each type of form, and specify the circumstances under which each would be appropriate and/or mandatory. Having formal procedures in place will make clear to your clients that you are diligent about the payment process and expect timely payment.
Collections. Your policy guidelines should explain in clear language the steps you’ll take if an account becomes delinquent. You should provide information on late fees, charges, overdue notifications and when delinquent accounts will be reported to credit agencies and/or turned over to a collection agency.
A good credit policy will help you start to get a handle on your cash flow. Questions? Give Carl Heinemann, your Chattanooga CPA, a call.
You’ve launched a business website, but customers aren’t flocking to purchase your online offerings. Why not? For some companies, tweaking an already inviting webpage may be sufficient. Other business websites may require a complete overhaul. If traffic to your homepage isn’t trending upward, consider the following tried-and-true guidelines:
Keep it simple. Flashing fonts, animated gifs, lengthy product videos — website designers may love them, but customers don’t. Bells and whistles tend to distract. And your webpage shouldn’t drone on with large blocks of text. Use short paragraphs, easily scanned bullet points and a few strategically placed and relevant images. Assume that your visitors are always in a hurry. Don’t give them a reason to leave.
Make the site accurate, fresh and easy to navigate. Before launching your website, fix all grammar and spelling errors. Confirm that each statement is correct. Update content frequently. Use a handful of clearly labeled tabs in your top-level menu. If the site contains several pages, make sure visitors can always get back to the homepage. Don’t make them search for what they need or want.
Don’t forget mobile device users. According to a survey by marketing data company SessionM, more than 90 percent of shoppers use smartphones to compare prices and check product reviews. This is a great reason to make sure your mobile website experience is a good one. That means making sure your website is responsive (AKA works well on all devices) and relevant for users on the go.
Focus on the customer. It’s great that your company has won the latest-and-greatest awards. Do online visitors care? Tie your awards to product quality. Link sales data to testimonials of satisfied customers. To encourage trust, include a professional photo of your team. Help visitors connect with your company by making contact information easy to find.
Minimize loading times. If you’re searching for a product or service, how long are you willing to wait for a webpage to load? Three seconds? Five? Your customers are busy, too. Accelerate loading times by updating software regularly, optimizing graphics and employing hosting services that cater to your bandwidth needs.
The internet is where people go to discuss their favorite sports teams, politicians, recipes — you name it. This is especially true for customers. You can find out how much people love or hate your business by what you see via Facebook, Instagram, Pinterest, Twitter and other social media platforms.
More and more of your customers will be tech-savvy folks who expect businesses to engage with them using these platforms. But when your company steps into the no-holds-barred world of social media, be sure to avoid three common blunders:
Setting up too many accounts. Don’t assume your target customers will be trolling every available social media site. Identify two or three platforms that your most-sought-after clients favor, then learn the strengths and weaknesses of each platform.
Blending personal and business accounts. Once in a while, your customers may enjoy a personal photo. But your politics may offend. They may go elsewhere when you post comments about a recent Hawaiian vacation, or your favorite politicians. To avoid appearing unprofessional or trivial, keep your company’s social media site separate from your personal account.
Using social media for the hard sell (right away). Think of these internet gathering places as a casual party. You don’t walk in, immediately hand out business cards and grab the microphone from the host to advertise your latest product. Take it slowly. Get to know the attendees first. Educate, entertain and add value. Then talk about your business in response to a customer’s expressed needs.
Expect to spend at least three months of concerted effort to see tangible business results using social media platforms. The more time you dedicate to getting to know your clients and potential customers, the better you’ll be at providing them the products and services they want.