Avoiding small-business collapse

Yaneek Page, Contributor

Q I just opened a tile company with my fiancé. I have secured a loan of 1/2 million dollars. My fiancé used most of the funds in the start-up of the business. The arrangement he made was to source the tiles from his friend in another community.

Before we opened we got the tile samples but could not get any of the tiles for our inventory, nor the expected price for each tile. We are now open and have many challenges. My finance's friend is not giving us a discount that will make the business successful. He still has not given us a list of the prices. We have no inventory, and we don't own a vehicle to transport the tiles from point A to B.

We use a taxi to transport our tiles, which cuts the little profit the business makes. We are not breaking even, and are losing customers as they are not able to wait until we deliver. What can we do to make our business a success. Any help given will be greatly appreciated.

- Name withheld

BUSINESSWISE:

There are so many major challenges facing your business I'm not sure where to begin. You are clearly suffering the consequences of very poor planning, particularly with respect to procurement, supply chain management and financial planning. If you don't take remedial actions now the business is likely to fail, completely wipe out your investment and even leave you in debt. Given the urgency of your predicament, I am suggesting some immediate and radical solutions in an effort to avoid a complete collapse of your small business.

You should never have opened a tile company without identifying reliable suppliers of tiles who will sell to you at wholesale prices to allow you room to add your margin and make a profit. You shouldn't rely on your friend as the only supplier. It is risky to rely on a single source for stock, inputs or raw material as if that company goes out of business, sharply increases its prices, or simply can't deliver the product, it will have a crippling effect on your business.

Solutions:

Forget about stocking up on inventory! Since your company is new, your customer base is small, you don't have any money and the economy is in a downturn your best bet is to display tiles from your suppliers, which you can arrange to have delivered to your customers as soon as they place an order and make payment.

You will need to engage potential suppliers immediately and sign agreements with them outlining the terms and conditions of procurement and payment. Ensure that wholesale price lists and stock levels are made available to you as part of the agreement, and that there is a mechanism to update you on any changes to same within a reasonable time. Note that your value proposition to the suppliers is that you will increase their sales.

Plan your logistics carefully to ensure that you can estimate accurate delivery times and establish a reliable delivery service - possibly with independent vans or trucks - so that when a customer places an order, it can be quickly fulfilled. Delivery should be billed to the customer as a separate expense.

Try to renegotiate your existing bank loan to get a reduced interest rate and extended payment term so as to reduce your monthly payment.

These measures will dramatically reduce costs associated with inventory management, security, damaged goods, insurance, human resources and travelling while improving your cash flow and customer service delivery.

The fact that you opened the business without getting a wholesale price list, or having a credible idea of the cost of your inventory is a huge red flag for me. To make matters worse, you did not include the means and cost of transporting the tiles in your budget. It appears you did no financial projections to establish your breakeven cost, projected profit and loss or cash flow. If you did, they would be flawed, as you did not have accurate information. Without credible financial projections you are like a blind woman crossing a busy intersection with no guide. Additionally, yo.iles from you?

Solutions:

You need a business plan which outlines your vision for the business, goals and objectives and how you will achieve them. It must also include an assessment of business environment, competitors, customer needs and a SWOT analysis. A SWOT analysis is an examination of your strengths, weaknesses, opportunities and threats. Importantly you must prepare financial projections. The plan will be your reality check - a clear indication of whether the business is viable.

If the business is viable, then you must create a strong value proposition and establish a competitive edge. You could explore partnerships with construction companies, draftsmen and tile companies. Consider adding other services such as tile installation, tile cleaning and renovation and virtual modeling through computer-aided designs.

If the business is shown not to be viable, then you need to develop an exit strategy, which is your plan to get out of the business in the fastest possible time with the least amount of expense, financial loss, stress and harm to reputation.

Good luck!

Yaneek Page is a trainer in entrepreneurship and workforce innovation. Email: yaneek.page@gmail.com, Twitter: @yaneekpage. www.theinnovatorsbootcamp.com