Case Study: Case of Business Threats, Part 3

Just because it’s old doesn’t mean it should be disregarded. Most business threats remain the same over time, regardless of technology changes. In our first installment I related the nature of a threat as well as the major test of financial stability. Last month we covered organizational issues. This month we look at selling as well as a final threat that may not quickly come to mind: occupancy.

There are two major tests within selling: trends and activities.

Sales can be up dramatically this year, but be flat over four years. Similarly, sales can drop this year, but be up significantly over four years. Or sales can be up this year and over four years, but we receive word our largest customer has sold and is moving out of town, so the analysis goes beyond raw numbers.

Sales Trends

Plot your last three complete years’ sales and then add the current year. Next, project this year based on this year’s average month, or use a seasonal projection (percent of typical sales year-to-date at this time divided into actual year-to-date). In fact, use both to see a complete picture.

If you have 15 percent growth over three years, then you are among the stronger printing companies. Sure, some hit 10 to 15 percent in a single year, but lose it the following one. And a note to my more detail-oriented friends: three to five years establishes a good trend. While some may wish to track monthly sales over a 20 year period, the information isn’t particularly relevant in establishing a current trend.

Sales Activities

Overall sales are the result of selling activities. These activities comprise a second level test of the sales trend. You could have significant growth based on luck. We need “planting in the spring in order to harvest in the fall” as Steven Covey reminds us in his “Seven Habits of Highly Effective People”. Relying on only one or two growing accounts is a threat to our business base, for instance.

Conversely, sales can drop without cause on our part. A downturn in the customer’s business or one customer lost to acquisition can hurt. The cure is constant selling activities. Always be seeking new accounts, and that is the second test of our sales strength.

Occupancy

Commonly overlooked is the role your location plays in the threats to your business. If your location is owned by someone else, do you have a lease? Some view being on a 30-day rental agreement as a positive, but I don’t. That means you could be forced to move with 30 days’ notice.

“Yes, but the owner is never going to do that,” is a common response. The problem isn’t with the good old owner but the owner’s heirs. Suddenly the owner passes and the heirs sell the property and then you’re out.

Also typical is a property owner who says, “Don’t worry about a lease.” They could be actively marketing the property and don’t want it encumbered by a lease to you. I have seen numerous instances of this.

Finally, if you own the property and you are a C corporation, you should have a fair market lease. C corporation owners who charge rent payments to themselves based on how well the business is doing from year to year can be found to be evading corporate taxes. Best here is to have a lease based on market values, which is more of a tax issue, but it can easily be a business threat.

These don’t, of course, comprise all the threats to our businesses. But these tests I have described over the past three installments are ones that are the most common and, thus, the most preventable.

The first major test is financial, for without cash we die. The second most important threat is organizational, for without performing the functions (getting jobs out, getting jobs in, and getting paid), we introduce weakness into our activities and are less able to rebound from adversity. The third most important threat is sales: sales trends and sales activities. And the fourth most important threat is occupancy: the ability for us to continue our business without disruption over time.