Protecting your family business
August 20, 2014
There are plenty of businesses in the UK, many family owned, that rely on a significant proportion of their turnover from one or two key clients.
Some business leaders may question the wisdom of this; I know many who set KPIs to limit the risk of having a few key clients, for example: “No more than 50% of turnover is to come from our top 5 clients”. However, it is symptomatic of many sectors. Think of the supply chain for any of the large manufacturers or that of one of the big four supermarket retailers. Companies in these supply chains might only have one customer and, in the main, this can be a really successful relationship.
In today’s highly dynamic economy, companies need to continually review their business models to remain competitive. Cost control and reduction is increasingly becoming a regular feature of day-to-day business and leads to price pressure in the supply chain. In addition to this people change jobs – the procurement manager of your category could leave for a new opportunity. Their replacement could apply a “new brush sweeps clean” philosophy to impress their new boss, or they might simply bring great supplier relationships from previous positions.
So, when your key client begins to turn its back on you, what can you do to avoid your business hitting the wall quickly, running out of cash and heading into insolvency if the relationship ends?
Firstly, don’t panic! It’s common for customers to be looking to improve the supplier relationship, terms and sometimes quality. A track record of poor quality or delivery may signpost the areas to focus on immediately. Otherwise, you will need to look at the efficiency and profitability of the products you supply and how these can be improved. A good plan executed well can rescue the relationship.
Don’t be tempted to sell your way out of the problem by ‘fire sale’. Quick sales rarely achieve value for owners, unless two competing buyers can be found, who are immediately available, cash-rich, and hungry for the business. You’ve still got to demonstrate the potential underlying viability of the business and the reasons why a buyer should commit in your timescale. Putting effort into the customer relationship may pay dividends if you ultimately decide on an exit.
Secondly make sure you can draw on the expertise of an adviser you’d trust with your business and your reputation. Time is limited in this scenario and you should take advantage of help from the right advisor. They can help you identify efficiency savings you can achieve quickly to extract profit and cash with which to negotiate. They can help identify potential partners who can help you rapidly diversify. Above all, they are used to crisis and evaluating information quickly and accurately. You don’t even need to watch Dragon’s Den to know what happens to the lucky people who get investment – they get experience, support and skills from the partner they select.
Safeguarding jobs and protecting reputation
And finally, work with your adviser to get your business to a safe place. Make sure you get the opportunity to re-tender that major contract with your key client. You have your personal reputation as a local employer to protect as well as duty of care for the jobs of your employees, some of whom may well be members of your own family.
Also, if you’re currently sitting there reading this thinking “it won’t happen to me”, it has happened to other businesses like yours and will do so again. So it’s worth digging out the paperwork related to your major contract(s) with your key client(s) just to be 100% sure of what they can and cannot get away with should they decide to implement a supplier review or, worse, terminate your contract at short notice.
Have you had a similar situation where you’ve snatched victory from the jaws of defeat? Share your experience(s) in the comments section below or set up a meeting if you’d like to discuss your situation more confidentially.