1. Be good to your current customers.
The success of most businesses can be attributed to repeat customers. Some studies show that it costs five to six times more to acquire a new customer than it does to retain an old one. Ask yourself: What can you do for your current customers that are not being provided by your competitors? Can you provide more products for the price, deliver your product or service more quickly, or perhaps provide useful information to the customer after the sale?
2. Handle customer complaints carefully.
When given lemons, make lemonade. If you handle customer complaints properly, you should be able to turn an unhappy customer into a long-term, profitable one.
Put yourself in the customer's shoes. What would it take to make the situation right? The most you will need to offer, in most cases, is to refund the money the customer paid. A satisfactory solution to a customer's complaint will most often end up with new customer referrals.
3. Refine your market and your marketing.
Competition gets more intense every year. There are more franchises in both retail and service businesses. In addition, customers are more mobile. Many customers are willing to travel 50 miles or more for goods and services they used to buy in their hometown.
One way to stay competitive is to limit your product or service line and become more of a specialist. This will give your customers the confidence that you can fill their needs more readily than another company.
Once you have focused on a more limited market, change your marketing techniques. Get the most from your marketing dollars by targeting your best prospects.
4. Test your marketing techniques.
Too few companies test their marketing. If you want the highest dollar return from your marketing efforts, test your marketing techniques. Test one advertisement against another; one price against another; or one market segment against another to see which performs the best.
Your customers can provide the most useful information. It is all well and good to use a marketing expert, but the proof of a successful campaign is customer reaction; in other words, sales. If your current marketing produces good results, see if a test against that program can improve your sales. Testing can produce some surprising results.
5. Become a customer of your competitors.
One excellent form of market research is to see what your competitors are doing. Unless it is cost-prohibitive, you should buy a few products from your competition. This will give you insight into several aspects of your competitors’ business. You will learn about their marketing, pricing, customer service, after-the-sale customer relations, and possibly their packaging and shipping methods. If you buy often enough to be on their mailing list, you will be kept informed about their new products and marketing brochures. (Yes, your competitors are already doing the same with you.)
6. Review your legal entity.
Business owners are often confused about the various forms of operating a business. Many incorporate their businesses without understanding why they are doing so. Some think it makes them sound like a more substantial entity. Or their friend incorporated his business and is happy with it. These are not sound reasons for incorporating. Take a little time to learn the tax and non-tax aspects of sole proprietorships, partnerships, limited liability companies, and corporations. Then you can make an informed decision for your business. As your business grows and changes, you may benefit from changing the form in which you do business.
7. Use written business agreements.
Many business agreements are done with a handshake. Though this can be an expedient way to do business in some circumstances, it can create problems. What if the other individual dies before all of the business is concluded? Will his heirs and attorney know what the two of you agreed on? Not likely. Or what will happen if the other party falls on hard financial times or maybe gets involved in a messy divorce? It is sad to say, but we have entered a very litigious period in all aspects of business. Your written agreement may not keep you out of court, but the end results should be better than if you are relying on an oral agreement.
8. Plan for business succession.
What will happen to your business when you are no longer running it? Will you pass it on to a family member? Do you plan to sell to an employee or some outsider? Is your competition a logical buyer?
Since your leaving the business can be unexpected, you should make the necessary provisions now so that others aren't faced with decisions they are not equipped to handle. Besides the possibility of a financial loss, business succession decisions can be the undoing of good family relationships.
9. Review owner's compensation.
In many small businesses, the owner's draw, salary, and expense account are often significant cash drains. When the company cash shortfall makes it necessary to cut back, the boss should be the first to adjust his or her draws. When your employees see that you are willing to make sacrifices, they will do likewise with fewer objections. Many small companies have gone under because the owner had excessive draws or would spend profits before they materialized.
10. Manage your company's growth.
It's possible for your company to grow too rapidly. Growing requires more cash for such things as inventory, more floor space, more employees, and possibly higher cash man is generated by company profits, someone needs to provide that cash. If the funds come from bank loans, you will be faced with a repayment schedule that will need to be met with future profits. If the future profits are not forthcoming, you could find yourself scrambling for a new source of funds. Many small businesses expanded too fast too soon. They found themselves with excess capacity, which never became profitable. Ultimately, their uncontrolled growth caused their companies to fail.
11. Learn to read between the lines.
Experience is a dear teacher. In addition to what you have learned in your own business and industry, learn from others. Someone once said, "I can't live long enough to make all the mistakes myself." By observing other businesses, even those outside your industry, you can take what worked and apply those techniques to your company. It is a mistake to rely solely on "industry standards" when trying to improve your company profits. For example, a full money-back guarantee without time limits may be a very profitable customer satisfaction technique. Don't let the fact that it is not done by others in your industry slow you down.
12. Get into a buying alliance.
To compete with large merchandisers on price, you need to buy at lower prices. Consider joining with a few other businesses so that you can buy in large quantities. When you buy for less, you can pass the savings on to your customers and still maintain the profit you need to be successful. To determine the benefits of such an alliance, ask your suppliers what the price break is for much larger quantities than you currently order (six to ten times greater, for example).
13. Take cash discounts.
Don't miss the cash discounts offered by your suppliers. A 2% discount for payment in ten days, versus net payment in 30 days, computes to an annual rate of return of 36%. If you can get a 10% discount for paying twelve months of payments in advance, you will earn 23% on your prepayment. Suppose you were able to prepay your land contract as in the following example: You owe $50,000 at 8% interest with payments of $7,450 per year for ten years. If your mortgage holder will accept $35,000 cash in exchange for your ten-year note, you will earn almost 17% on your money. Long-term contracts are often paid off early with large discounts. With these rates of returns on discounts, you may be able to borrow from the bank and still make a good return on your money.
14. Sign all checks personally.
If you are not -M.S doing so already, sign every check that leaves your company. Small companies have a limited number of checks to sign, and you will get a close look at what is being purchased. You may discover waste in the buying procedure or that cash discounts are being missed. Or you may discover that your best vendors are being paid slower than is conducive to a good relationship. Perhaps purchases are not being consolidated to take advantage of quantity discounts. Maybe you have been paying for overtime that could have been avoided with proper planning. While signing checks, you may identify items that could lead to major savings for the company.
15. Control fraud inside and out.
American businesses lose billions of dollars each year due to fraud. Small businesses are especially vulnerable since they often lack the proper controls. Even in very small companies, some controls can be put in place with very little time or money. It is important to divide certain jobs to avoid giving one employee too much control over a procedure. For example, the person responsible for making bank deposits should not be the one to reconcile the bank account. There is a world of information in the bank statement. The owner/manager should get the bank statement before it is opened by anyone else. Let us help you divide the duties in your company to obtain the best internal control possible with your limited number of employees. This will help deter the theft of cash as well as other company assets. It is almost impossible to avoid all fraud, but a few good controls will pay off. Fraud from outsiders can come in the form of phony invoices, shipments of goods, which you did not order, and a vendor or its employee working in partnership with one of your employees to overcharge you for goods or services.
16. Beware of credit card debt.
It is estimated that at least half of all small businesses use credit cards to finance some or all of their business. Due to the credit limit on cards, the chances are that you would need several cards to secure adequate financing for even a small business. Using a credit card in this fashion is not a good business practice. Not only will you be paying premium rates for this source of funds, but you will also have several monthly payments on several cards. Instead of owing money to five sources, consider consolidating all your debt into one loan with your local banker. If you can arrange a loan against your real estate, for example, you should be able to get a long-term, low interest rate loan with a smaller monthly payment.
17. Budget for technology.
It is neither necessary nor desirable to have all the latest electronic gadgets. But it is wise to have the equipment that will allow you to be competitive. Can you imagine your accountant trying to do your income tax return without the use of a computer? Well, in the past few years, your accountant has not only purchased a computer with the appropriate software, he or she has purchased several computers or upgrades and constant software enhancements. Computers are a mixed blessing. They have made our lives easier (in some cases), but they have placed a financial demand on us to keep up with current changes. Many new and very effective software programs are too large to run on older model computers. Just as you buy replacement motor vehicles, you will be buying replacement computing and communicating equipment.