Many small business owners come into work every morning but they do not necessarily have a plan of where the business is going, how to build the business, how to get new customers and improve sales. Some people will advertise but never check to see if the additional profit generated from that advertising exceeds the cost of the advertising program.
Many small businesses try one form of advertising, if that does not work, they try something else. Is that the right way of expanding the business? Has the owner really thought of what they are trying to accomplish. Advertising works in some businesses but not for others. I talked to one owner who spend $80,000 on advertising. 100% of his business was by generated tendering jobs. How did that advertising work? Needless to say, it did not generate any business and that was one of the reasons that the business lost $2 million in a short period of time and ended up closing. In this case, the owner wanted to expand the business but had no plan. He wanted to build a bigger business so he moved the warehouse from a 9,000 square foot building to a 35,000 square foot building. Sales were dropping while he switched locations and he spent a lot of money on leaseholds and advertising programs which did not work.
This owner told me that some products in his inventory do not sell well in North America but they sell well in Europe. I asked if he would then try to sell the products in Europe himself and he said that he never thought of that! If you are the owner and you have slow moving inventory, shouldn’t you do what it takes to get rid of it? Working capital is critical and business owners must be aware of that and monitor it closely. This company decided to buy more inventory because they had a bigger warehouse. They assumed that if you had more merchandise, your sales would increase. He forgot that you need customers to buy that inventory and it does not sell itself. What I am trying to show is that an owner needs a clear vision of how to grow their business. Hap hazard reactions without a plan may work but more oft than not, they do not work.
If working capital is tight, you may not have the luxury of spending money on many different thinks to find out that none of them work. Whether you are going to buy a business, expand your business, you need to understand your customers, understand your products, figure out if your customers would buy other goods if you sold them as well. Research, plan and then execute and if you have done your homework properly, your sales will expand.