SBA Loan Workout: It is Time to Fire Some of Your Clients

We talk about the need to downsize to accommodate reduced revenues and increased overhead, and frequently we focused on reducing payroll, negotiating a discount on rent, and reducing other controllable overhead items, all good ideas, actually necessary strategies in today's changing economy.

However we seldom talk about the need to reduce our client base, sounds crazy. Why would we ever want to do that, especially when confronting reduced revenues?

If anything we want to increase the number of clients we have, not reduce the number.

Is a simple concept most often overlooked but a very necessary evaluation and an effective internal adjustment that will yield great results.

Over time, in our effort to build sales revenues, one frequently ignores the profit earned from each sale and from each customer, focusing more on gross revenue, believing the higher the better.

In our drive to build gross revenues we forget net profit is far more important.

Thus we sometimes sell at the lowest price to small volume clients or we give away shipping charges, or we sell to clients who pay in 120 days, bounce checks and always owe you as they order every 90 days. Sometimes we have sales and extend the sale price indefinitely, sometimes we have sales and only manage to sell the same amount to the same clients but at lower prices achieving no gain, and on it goes. There are many ways we erode our profit, yet our cost of goods and overhead remains the same.

This reduces our net profit which is damaging to our well being and we do it to ourselves.

So here is the fix. Review your clients one a time and evaluate whether or not each one is worth keeping as a client. When you discover prices too low, or net profit being eroded for any reason, call the client explain you must adjust appropriately as they will no longer be shipped at the previous terms and conditions. If they reject the changes good let them go, If they stay with new terms and conditions even better.

You are unlikely to make more profit selling more goods or services at low margins, too low to yield adequate net profit. It does not work. In fact you will find out that most of your profit comes from a small percentage of your clients and if these were the only ones you had, you could downsize and increase profitability simultaneously.

Review your client base and the sales you are making to each one, see what it looks like and then make the appropriate decisions one at a time. You may be able to increase profit and reduce payroll This is quality downsizing.

Do it, it works.