Why too much investment in marketing campaigns could kill off your business
For his latest Business Advice article, Grid Law founder David Walker explains why small business owners puttingtoo much in time and resources into marketing campaigns could be threatening the profitability of their firm.
Have you ever considered that increasing your marketing efforts could be fatal for your business?
Clearly, this is never the intended outcome of any marketing campaign, but it could easily be the end result. To find out if your business is at risk of suffering a similar fate, answer the following question.
When your cash flow is stretched to the limit because of slow-paying clients, what do you do first?
Take positive action to address this problem and collect the money you’re owed?
Focus on your marketing and winning new business to generate more income and make up the short fall?
If you, like many people I ask this question, answered 2, your business could be in real trouble. This strategy rarely works and in most cases, it makes the situation worse.
Let me explain why.
Weve all heard the expressions cash is king? and cash flow is the lifeblood of a business? but have you ever stopped to think about what they really mean?
Cash is more important than profit. Without cash, a profitable business can be forced to close, but with cash, a business on its knees can be turned around. This is because you cannot spend profits. Profits are just a line on your accounts, a promise of cash and you never know if that promise will be fulfilled.
You can only spend cash. Without it, you can’t pay your staff, suppliers or other overheads. If you can’t pay your bills as they become due, your business is insolvent and may have to close.
Focusing on winning new business when you’re in this position may seem like the logical thing to do, and to start with it may seem like this strategy is working. As new work comes in, you get busier and busier and may even take on new staff and have to increase overheads just to cope with the demand.
The trouble is, if you havent addressed the underlying problem, your credit control system, you’re probably just going to end up with more clients who don’t pay on time.
When this happens, you work even harder but with higher overheads and less cash coming in. This cycle continues until the situation becomes unsustainable. Then, all of a sudden, you don’t have enough cash to pay your suppliers or to meet payroll and you’re left wondering what happened.
This is why you can’t trade your way out of a late payment problem.
So, what should you do instead?
As important as anymarketing campaign is, it’s a waste of time if you’re not getting paid for the work you’re doing. Therefore, you need to focus on making your credit control procedures as efficient as possible. The first step towards this is making them a priority.
Make sure you’re invoicing your clients on time and then sending reminders when your invoices becomes overdue.
David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry, advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.
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