Blasphemy to a small business owner is walking away from a sale. I need to pay back my start-up costs. I need to cover my fixed operating expenses I.e. payroll, rent, etc.
All revenues are needed. All revenue is good. All revenues are equal.
No. Not necessarily. As hard as it is to walk away from a sale, some sales and some customers are even harder.
Here are a few examples that require serious thought and analysis:
- a sale outside of your core competency
- a sale that is too big for your current capacity
- a sale to a client that does not match your target audience
Let’s break this down.
Outside of the Core Competency of Your Business
I have a finance degree and have held roles as a Controller and CFO. Regardless I am not an accountant, I am not a CPA, and I have been in my own business for 15 years and have not kept up with changing tax laws, new enterprise systems, etc. My clients all need help at some point with bookkeeping, entity set-up, or tax advice.
I know enough to be dangerous. I know what they need and I know how to analyze the financial information once it is prepared. But, even though my clients need it, and even though I know more than they do, I refer out bookkeeping and accounting services to someone I trust. I have given away truly hundreds of thousands in sales over the years.
Messing up someone’s accounting could have serious implications on a business. Small business owners are managing cash flow tightly and usually base their business decisions on what is in their bank account. I don’t want to be the cause of their accounts getting frozen for not paying payroll taxes or the tipping of the finely balanced cash flow when they realize they owe $25,000 in taxes at the end of the year.
Accounting is not a core competency of our business so we don’t do it.
We walk away from the sale.
Too Big For Your Current Capacity
This one is a difficult one to turn away. A really big sale and you think I should let it go? Well, it really depends. I completely believe that for a small business to become profitable and to increase profit you have to focus on revenue growth. You can’t cut enough expenses before you cripple your ability to provide quality products and services.
So if you need revenues it is always fine to stretch to meet the needs. But if you get a sale so large that:
- your business doesn’t have the cash flow to fund the project and you will not meet payroll or pay your vendors before you get paid
- the customer becomes more than 40%-50% of your business and you are leveraged to keep the customer at all costs
- you are not sure you can do the job well with your resources and you risk damaging your reputation
- you are unlikely to need the resources for this job in the future unless you have ongoing business this size, but you have no time to sell to new businesses because you are completely absorbed in making this job work
…you should consider walking away.
This exact situation happened with one of my clients five or six years ago. They finally won a huge contract. It was around $600,000. The company’s annual sales may have been a little over twice that. The requirements for upfront investment from my client to do this size job, the weekly payroll needs, and just his current internal set-up/team capability would have stretched his business past it’s capacity. The deadline was too close to even try to secure credit lines, staff, and equipment to meet the needs.
But he had worked for 6 months to win the bid. Of course, to win it he had to keep reducing his margins and they took longer than expected to make a decision. When we obsessively reviewed the pros and cons of the job, we kept landing on the impact to our reputation long-term if we didn’t do a good job. This bid was with a local plant. It takes forever to get in, but if you mess up, it is even longer for them to forgive and forget.
It was a sad day, but he walked away from the sale. We were truly afraid it could crush his business.
Looking back at the smaller plant jobs he does regularly now, he is sincerely happy that he walked away. Over the years he has had healthy growth and is now in a position he can bid on this type of job with confidence. But, knowing what he knows now, he is sure that past opportunity would have been a train wreck and potentially shut down his business.
The Customer Is Way Outside of Your Ideal Client
This one is a little less clear. We all work with people who we would say are not ideal for one reason or another. They are difficult to deal with or they don’t pay on time. I am not really talking about that.
But too an extreme maybe.
A simple example may be in my own business. We work with small businesses. The principles of business are the same in many cases in larger companies. One example for us is training. We do leadership training with our clients and their teams. Our ideal client has always owned their own business or maybe were not in leadership roles at a big company before they started their own business.
We love to train our clients. Usually it is a small group of 4-6 people. The max would be 10 because that is all our conference room will hold. We have been referred to considerably bigger clients for this type of training. Having a business background and counseling is great credentials for leadership assessments and training.
But based on our business model, we only train people we are working with as business coaching clients and they are all relatively small companies with much fewer than 50 employees.
On multiple occasions we have been asked to provide an estimate for companies that have several hundred employees and want training in multiple locations and online. I like to train in an interactive group coaching way. This is easy with our clients because we know them and we know their business. We can tailor the workshops or talks specifically to examples in their own company.
In a big company where we only know a couple of people that have not worked with us regularly, it would be really difficult to tailor as effectively. Besides, I don’t like getting up in front of a group of strangers and try to get them engaged in generic content. Could I do it? Probably. Would it be lucrative? Possibly. Would I hate it? Definitely.
I would be doing work for a large time consuming project that I didn’t like. It would take me away from my other clients. It would keep me from growing my business with new clients due to time. It isn’t my niche or my ideal client so my lack of enthusiasm may show. Honestly, the only reason to do it would be just for money….which doesn’t match our values.
I have found that most clients when they work with their ideal client in their core competency make fans and get referrals. Their business grows. Doing something outside of your niche will likely be a one off project or sale and not have the same referral traction.
It may provide short-term cash flow but then you drop back down the next year when you can’t repeat it.
Sometimes It is Better to Just Walk Away From a Sale
I know it is hard as a small business owner to walk away from a sale. And I believe we should always strive to the next level, continue growing our business, and keep it healthy and profitable, sales is the best way to do this.
I know client’s who didn’t walk away from the sale. I have personally not walked away from the sale.
In the majority of these cases, the end result has been regret.
When growing sales, create a strategy, determine your target audience, execute consistently, and your business will grow healthily over time.
As new opportunities present themselves, evaluate if they are within your strategy, are with your target audience, and if you can execute it profitably and well.
it may be the time you walk away from the sale.