AVOID GOING OUT OF BUSINESS – 10 STEPS TO AVOIDING BANKRUPTCY

AVOID GOING OUT OF BUSINESS – 10 STEPS TO AVOIDING BANKRUPTCY

❏ Today, I will discuss  Avoid Going Out of Business – 10 Steps to Avoiding Bankruptcy. We’ve all seen companies close. If we frequented those businesses as customers, we had a few ideas about why it likely happened. Surprisingly, when one speaks to the owners, they blame everything and everyone but themselves. In reality, in almost 100% of the business closures, it was 100% the fault of the business owners. If you have had a company fail and think you are about to, you’re going to challenge me on that statement. I will prove my statement in this article to be 100% true.

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As the founder and CEO of IdeaToGrowth.com, I aim to be there for executives with the right kind of help at the right time. I write about many common business challenges businesses of all sizes will face. Executives who follow me and read my posts will find many answers to the problems they face today. If you like my articles and need hands-on help, contact me.

Are you ready to learn something new? Let’s get started!

Step 1 – Create a Budget (& Live By It!)

Do you have a business plan with a budget? If you are like most small to medium-sized businesses, you do not. Yes, you may have put something together before starting your business, but when did you last look at it? One year ago? Three years ago? Let’s admit it. You’re winging it.

A monthly budget, looking forward to at least 12 months, can help you run your business. It can also help keep you from waking up one morning and realizing you can’t make the next payroll. Now you say, “This can’t happen to me!”. Well, you’re mistaken. Many businesses collect their money daily, which goes into their bank account. They or their bookkeeper sit down monthly to pay the business bills. There’s little left over for many companies after paying the business bills and federal, state, and local taxes. Each month, you breathe a sigh of relief. Is this really how you want to run your business?

Monthly Plan and Budget – Avoid Going Out of Business!

By creating a monthly budget and planning 12 months out, you can see what you need to do in sales and margin to stay afloat. You need to put some money aside in reserve. Why? What happens if a big client who has been paying on time suddenly stops paying? What happens if you decide to buy that new line of products flops with your customers? What will happen to your revenue if your #1 salesperson quits and it takes you months to replace them? If your local economy goes into a downturn, how long can you survive? How long can you stay if your local economy goes into a downturn?

Do you have a marketing budget? How much? Successful companies spend 3–15% of their revenue on marketing and advertising. What did you pay last year? Which brought in the most customers? Bottom line: You must have a budget if you stay in business. If you don’t have a budget now, it is time to sit down and make one. If you have a team, this should be a team project. Be sure to include your bookkeeper. They can tell you what you spent and where you made your money by product category. Make a BUDGET now!

Step 2 – Form an Advisory Board (& Meet Monthly)

Do you have an advisory board? No? It’s time to create one! An advisory board is ideally made up of a combination of active and retired business professionals. Preferably, you have a former CEO whose business is in the same space as yours. A financial professional—a CPA is ideal—is another person you should have. It would be best to have a customer service expert with 10+ years of experience. Getting a product development manager with experience building similar products should be a target acquisition for your advisory board. The crucial last member is a marketing professional familiar with products or services related to your business.

Finding these skilled people will be a tall order for most companies. These people are complex to see and more challenging to attract. However, it would be best if you made it happen. You can buy them a nice lunch when you meet. Throw an annual Advisory Board Appreciation Party! Consider paying them for their time. You can give them a small ownership stake in your company for each month they serve. I like the last one because they have a strong reason not only to show up but also to participate and do follow-up!

Monthly Advisory Board Meetings

The following key component is that you must meet once a month! Why? Both good and bad things tend to happen in a hurry. So many company leaders make political decisions, and then a few months later, the company is tanking, and they’re shocked at what happened. Discussing your plan and results every 30 days can help avoid disasters. If you don’t have an advisory board, please form one now.

Customer Acquisition Plan

We’ve all seen it. A new business suddenly appears in a mall. You’ve never heard of them. What do they sell? Why should you buy from them? A few months later, the business closed. Why? They likely needed a customer acquisition plan. So, you say you have a customer acquisition plan? Really? Challenge questions:

1. What is your CAC (Customer Acquisition Cost)?
2. What are your top 5 methods of acquiring customers?
3. How many dollars did you spend each month over the last twelve months on each method?
4. Are you doing FaceBook advertising?
5. LinkedIn advertising?
6. Pinterest advertising?
7. TV advertising?
8. Podcast advertising?
9. Google Adwords advertising?
10. How do you market to get repeat customers?
11. What is the monthly ratio of repeat customer to new customers for each of the last 12 months?
12. How is your email marketing campaign working?
13. Do you use door hangers?
14. Have you tried billboard advertising?

How about marketing on movie theater screens? I’ve only scratched the surface of what you should look at when forming a customer acquisition plan.

Step 4 – Don’t Be Your Customers ‘Bank’

When Michael Dell, founder and CEO of Dell Computer, started his business, he was a college student. The timing was early in the life of the personal computer, and the company that sold them was IBM. They were costly. The electronic components of a PC are commonly available through Taiwanese companies. How to build a PC from these parts was well known, but only some, if any, were doing so. Michael Dell decided he would contract a Taiwanese company to buy and assemble most of the computers and ship the partial assemblies to him for final manufacturing and shipment to customers.

But Michael had a problem. He had no money. So Michael cut a deal with the Taiwanese suppliers to pay them 60–90 days after they shipped to Michael. He then initially initially advertised through word of mouth and first customers. When they ordered, Michael quickly charged their card as soon as the products shipped. Because he collected his customers’ money before he had to pay his suppliers, he always had a positive cash flow balance! He was able to avoid going out of business by never having debt!

How Do You Get Paid for Your Product or Service?

If you’re like most businesses, you buy the product you are going to sell from your supplier on 30-day payment terms. So, you’ll need to pay your supplier 30 days after they ship it to you. You will likely have to pay cash for a shipment if you’re a small business with little credit history. How long does it sit on your shelf before you sell it? Ten days? Thirty days? Sixty days? Ninety days?

You are the opposite of Michael Dell. You have to raise the cash to fund your business. This type of money is usually costly. You will likely pull it out of your savings. Alternatively, you may borrow against your credit card or home (yikes!). If you’re lucky, you can get a business loan from a bank, but likely at a high interest rate (yikes again!).

Be Like Michael Dell

I say, don’t be a bank! Be like Michael Dell. Contact suppliers who still need to pay 30, 60, or 90-day payment terms. Often, it’s worth paying them more for the product if you can get longer terms. Let your suppliers be your bank! If your business is a SaaS (software as a service) or consulting-type company, charge before you deliver! For example, if you are going to do an advertising campaign for July, you can bill them in June, specifying payment is due in full no later than June 20th. That gives you ten days to reach out to them if they haven’t paid and to fill that time slot with another waiting client if they don’t. When they don’t pay, you don’t work.

When you correctly do your customer acquisition plan, you pop the next waiting client into their slot. If your fees are under $5K, require your clients to pay by credit card. When you are a service business, charge their card ten days before their appointment. Please specify in your Terms of Service that you will do that. For most consulting or service-type companies, it takes days or weeks to fill a time slot. It takes days or weeks for most consulting or service-type businesses. Once a client has booked a time slot, filling it with another paying customer usually requires more time quickly. If a client cancels or doesn’t show up, don’t make it your financial problem. If you can fill the slot with another client, integrity says you should refund their money and let them know why.

Bottom line: If possible, don’t be a bank to your customers to avoid going out of business.

Step 5 – Survey Your Customers Satisfaction

What is your customer’s opinion of your business? If you said, “They love us” or anything similar, why do you think that? Is your business growing 10%+ per month every month? No? Then, your customers likely love you less than you might think!

I propose you discover the “why” or “why not” to this question. If you are a business today, online or brick-and-mortar, you should have a process by which you collect all of your customers’ email addresses. If not, start today.

It would be best if you did a customer satisfaction survey. What I recommend will ideally involve your website guru. Although I understand this may not be possible, I can do the same thing with a postcard or even a handout.

At the top of this website, email, postcard,, or handout, write “Customer Satisfaction Survey.”. Under that, write, “Thank you for your business! At [Insert Business Name], we would like to know the top 3 reasons to honor us with your business.”. Please check UP TO 3 REASONS BELOW. Thank you in advance for helping us learn how to serve you better.“.

Reasons Your Customers Buy From You

Write down the nine reasons “you” think your customers buy from you. Add a tenth titled “Other” with a lined space, allowing the user to insert a few words. I’ve shown an example list below.

If you want to increase your conversion rate (the number of people who will fill out the form), add a reward at the bottom. Please keep it simple. It can be 10% off your next purchase of $100 or more. For every 100 people who complete the survey, you will make a $100 donation to a local charity. Pick something that will have some “value” to your customers. I like the local charity angle for increased conversion. It sets you up for a follow-up email a month or so later showing a snapshot of your check to the local charity. Example:

For every ten survey participants, [your company name] will donate $10 to [insert local charity name]. Thank you for your feedback and for helping one of our local charities! [Your Signature], CEO

Now you have the “real” top 3 reasons, there is good chance your “whys” were not your customers buy from you. There’s a pretty good chance your “whys” were not your customer’s whys. Ideally, all nine reasons you listed are essential to growing your business. Now you know where you need to focus on “getting better” at those things on your list that you need to improve on. The number-ten blank may even open your eyes to something relevant to your customers that you didn’t even realize. Now that you know how to take advantage of that and promote it, you are no longer guessing why your customers buy from you.

Not guessing is critical to keep growing your business as fast as possible and avoid going out of business.

Survey Example

Thank you for your business! At [Insert Business Name] we would like to know the Top 3 Reasons that you honor us with your business!”.

Please check UP TO 3 REASONS BELOW. Thank you in advance for helping us learn how to serve you better! 

[  ] Competitive Prices                           [  ] Customer Service

[  ] Product Warranty                            [  ] Easy Access Location

[  ] Product Quality                               [  ] Ease of Website Use

[  ] Product Selection                            [  ] Knowledge of Staff

[  ] You Make Me Money                        [  ] Other: _______________________________________

For every 10 people who complete the survey, [Your Company Name] will donate $10 to [Insert Local Charity Name].

Thank you for your feedback and for helping one of our local charities! 

[Your Signature], CEO

Step 6 – Raise Prices

I firmly believe in providing a quality product and service at a competitive price. Just to let you know, I did not say the lowest price. Why not? There is no brand loyalty to a vendor who sells cheap stuff. As soon as someone more affordable comes along, your customer will jump ship and sail away with them! I prefer to be with Apple, not Google (cellular phone reference). I want my customers to have a substantial list of reasons they buy from me. High-quality products, services, support, and more! I want clients to think about how my services solve big problems that make them more money (in actual quantifiable cash or quality of life). When they refer my company to another business person, I only want my clients to speak to the “value” I bring them.

Under-Pricing

I work with many startups each year, and almost without exception, they “under-price” their product or service. First, I tell them, “Raise your prices immediately!”.  If your company is a service business, start today with higher rates for all new clients. Phase in higher prices over 3–12 months. If you’re starting your business, discounting your customers is expected. When you invoice, show your future rate on the invoice, then add a discount line, then the amount they are paying today. Offer discounts only for small windows, such as two weeks, one month, or three months. Avoid giving a discount for more than six months, even if you are a new company. More extended periods cause customers to look at what they are paying the regular price for, and it’s hard to raise prices on them in the future.

If you raise your prices once and lose a lot to no customers at the new higher rate, raise them again! You are most likely still selling at too low a price. Make sure to leave money on the table like this. If you give your customers more value than you are charging them, they know it. Raising prices can help ensure you avoid going out of business.

Step 7 – Offer a Free Sample or Trial

I’ve seen many companies come to market with a product and try to sell it at a total price. In complex physical products, this is common and necessary. But the more expensive it is, the more reluctant a buyer will be to shell out hard cash without “seeing if it solves the problem.” In hard goods, you need to get “experts” to write up reviews on your product. Even in software, you should do the same. However, you have more options than hard goods in the software arena. You can offer a free trial!

When customer buyers buy your product or service, they do so solely to “solve a problem.” Vendors need to build a sense of trust that your product or service will solve that problem. No one wants to buy a product or service and find out it doesn’t address their problem! With software, one of the easiest ways to build trust and prove that you are the solution is to offer a free trial period. By allowing a potential customer to try before they buy, you are removing the rip-off fear factor and building trust! If your potential customer infrequently uses the software, you will want to turn off a key feature or two so they can pay before the problem is solved. If your software will be used daily and is complicated, you may need a more extended free evaluation period. Build trust, then sell!

Step 8 – Keep Your Bank & Investors Up to Date

Few entrepreneurs want to be the “bearer of bad news” to our investors or staff. In many downward sales trends, smaller companies do not have a formal board; if they do, they have only quarterly meetings—neither banks nor investors like surprises. If your sales are falling below forecast, discuss this in detail in your monthly advisory meeting. Schedule a conference call to discuss the best course of action when your finances are going south quickly between sessions. If you have a bank loan and if the downward sales trend is going to impact your ability to make your monthly payment within a month or two, get advice from your board and CPA as to when you should sit to discuss the issues.

If you are unsurprised, many banks will work with customers to lower payments. Too many entrepreneurs miss a bank payment and wait for the bank to start chasing them. Investors are more likely to respond with help if you’ve given them an early heads-up on financial challenges. Please call your bank p and say, “We’re out of money. Send more tomorrow, or we’re closing our doors.” You laugh, but it happens more often than you think.

Please, never be this type of borrower! It puts you on the wrong side of asking for help when you need it to avoid going out of business.

Step 9 – Write a Monthly Newsletter

My clients will tell you that I am a firm believer in every company writing a one-page monthly newsletter that they share with the world! Newsletters do so much for a firm. One is that it forces your company’s overall status once a month. Two, it brings the critical leadership together: CEO, Sales & Marketing, Product Development, and HR, to write one overview paragraph promoting their progress and challenges. Third, a newsletter is a perfect medium to share monthly with investors, potential investors, customers, potential customers, suppliers, potential suppliers, employees, the news media, and even your competitors. Plus, it can be a great way to grow your mailing list. There is nothing but the upside.

I suggest you publish your newsletter on the first calendar day of every month, regardless of the day of the week. It’s also OK to shift the day of the month to the first business day if the 1st falls on a Saturday or Sunday so that it is more likely to be read. The critical point is that by picking the 1st of every month, those interested will quickly form the habit of looking for your monthly newsletter. No other day of the month has this same habit-forming value. I promise that within 2–3 months, you will see multiple positive effects across all interested in our engagements.

Step 10 – Think Outside the Box

Are you trying to avoid going out of business? I challenge you to think outside the box in all aspects of your business!

As CEO of my last VC company, I had the challenge of getting noticed by investors and potential employees. Being in Silicon Valley, I had to “think outside the box” to rise above the noise. I was inspired to buy up 60-second ad space on the pre-roll (those ads you see before a movie) at every theater in Silicon Valley. Within weeks, more engineers were taking our calls to speak about job opportunities than ever before. People I did not know at investor parties would approach me and say, “I saw your ad at the movie theater with my kids. Please tell me more about your company.” The ads cost me a few thousand dollars a month. My team and I raised 87 million dollars over three investment rounds. Movie theater ads were not why investors wrote checks, but they did get us noticed.

Conclusion

I hope this article has given you educational value. Before my coaching on this subject, a few of my clients were following these best practices. I hope you’ll take my advice. You’re much less likely to get into trouble if you track these ten steps early and consistently. Follow these ten steps early and continuously to avoid getting into trouble. Following these ten steps early and always makes you