Every entrepreneur and business owner I have ever met feels anxiety towards his/her business. In these difficult economic times, anxiety levels usually rise. What is the source of the anxiety? How can you start to get rid of it? Please allow me to try and answer: the greatest anxiety usually comes from the unknown. Here is an example. Let's assume your largest customer represents 25% of your business.& Your customer tells you that she is having significant financial problems and she may need to reduce or altogether eliminate her business with you in the next 6 months. Enter Stage Left - ANXIETY.
How can you survive that? What will you do? As these and other questions arise in your mind and remain unanswered, your anxiety towards your business will most likely increase.
Here is the way to begin to alleviate your anxiety - we will continue with the example above.
First, we need to create a projection, pro forma, or budget of our operations for the next 12 to 24 months without the loss of the customer included in the projections. This needs to include both the income statement and the balance sheet so we can understand both the profitability and the cash flow of the business during the specified time.
Second, we need to understand all of the elements of our relationship with this customer that we might lose. The easy part is saying we need to reduce sales by 25%. But what about this customer's impact on gross margin? Do we earn a higher or lower gross margin with them than our company average? Are there elements of our fixed cost structure that might go away if the customer goes away? Does this customer pay faster or slower than our customers? These questions begin to derive the true impact of the loss of this customer on our overall profitability and cash flow.
Third, we need to make adjustments to our projections to account for the loss of this customer. This can be a bit tricky, but is certainly possible.
Fourth, we need to objectively analyze the results. What impact would the loss of this customer really have? Sure we have had to make a few assumptions, but we will be pretty close to knowing the answer to this question. With real answers, the anxiety will begin to subside. Even if you don't like the outcome, knowing the outcome immediately removes a big part of the anxiety. This information will empower you to handle this or any other issue that arises in your business.