It may be hard to believe in the current economy, but one of my clients is actually having a really good year, and I believe that’s due to the fact that this particular client makes very unique and effective sales presentation.
Recently my client added some new employees in order to keep up with the demand and he asked me if he should buy a new truck. He said he thought it would make one of his new crews more productive.
I immediately went back to my own business experience, which prompted me to say,
When I had a peak in demand and was doing really well, I went overboard with capital expenditures. I added locations and product lines because I thought the huge spike in demand was never going to end.
This was a big mistake.
I told my client that we hadn’t even done any testing yet to see if our new employees were going to remain as permanent employees and he was here already thinking about buying trucks to make the hypothetical employees more efficient.
My client came back with the suggestion that he could take one of the new guys and let him go solo on the truck to do some lower end jobs. I held firm that what we should do was nothing and review this in another two months.
Two months is a good amount of time to let something of this nature sit, because we will see if we still have the same sales backlog, we will see if the new employees are working out, we will also have a better idea how as a business we handled this excessive amount of sales activity from a quality standpoint and we will know if it is profitable to do these smaller jobs. We will also have a better idea to see if there is time to market the smaller jobs for the truck strategy my client talked about. I told my client that business owners (me included) have a tendency to really over spend when times are good. They almost do it because they have the cash available to do it and things are going so well so they think they need to capitalize on this success without thinking that these great times are not going to last forever and the overspending still has to be paid for. As I told my client this he began to understand and he thanked me for putting the breaks on the idea. I told him you must be equally as disciplined in managing upturns as in managing downturns and you must never think you can afford something just because the cash is currently available. You must constantly look to conserve cash unless a real return on the investment can be forecasted with accuracy and all of the other areas of the business are stable and tested as cash is the lifeblood of your business.
This exchange between my client and I is just one more example of how it is a great advantage for a business owner to have an entrepreneurial chief financial officer. The entrepreneurial CFO can reflect back on the many real life business experiences and apply those experiences for the benefit of their clients.