The end-of-year holiday is a time to reap big for many small businesses in Kenya. Unfortunately, your profits may not grow in a big way despite the increased number of customers.
You have done everything you were advised to do as a budding entrepreneur. You put your marketing on overdrive. You broadened your supply chain and, hopefully, you also decided to reward your employees because you’re such a good person.
But when you’re alone crunching the numbers, you find your business results over the holidays don’r really impress you. What could be the problem?
Too much stock
Overstocking is an easy trap for any small business in Kenya to fall into over this holiday period. You believe you’ll have more customers so you bulk up on stock in anticipation. But overstocking, besides increasing storage cost, also mean you’re taking on uncalculated risks. Customers could change preference overnight. Perhaps your competitor rolled out an improved product or service at this time.
Having too much stock also means that you have made the choice to direct your precious working capital to buy more stock. This will put pressure on your operations if you don’t generate as much revenue as anticipated over the holiday.
What to do? Only you can tell how much stock you need. But you need to have a proper inventory management system to give you exact numbers. That’s a medium term solution. If you’re having too much stock, slow inventory turnover, perhaps, it would be smart to try creative means of getting rid of it to get working capital on your hands for the short term.
While some entrepreneurs struggle to clear stock, other clear it way too fast. Growth of business can be a bad thing. You can notice this problem when you’re increased revenues are not corresponding with profits. Why? the revenues may be on accrual basis or you’re simply experiencing the effects of bad debt. You could have stretched your working capital thin taking up more employees help over the holidays.
The consequence is that your operations will be stymied. You can’t pay employees, suppliers and creditors. You may find that you also cannot meet customer demands since you’ve taken up more than your resources can handle. This only ruins your reputation for future business.
To avoid the problem of overtrading, you have to go back to the cash budgets and income forecasts you made when planning for the holiday. A little leeway is allowed, but don’t be tempted to live beyond the bounds of your plan.
Race to the bottom
Lower your standards enough and you will find someone good enough for you. That’s what they say haha. It’s not just lonely people who do this. Countries do it to attract foreign investments (EPZs?). Small businesses also get caught in how to react to intense competition.
Just because other businesses are lowering prices doesn’t mean you have to. If they are offering unrealistic services (like a supermarket giving free carrying bags, ah the good old days) it doesn’t mean you must. You may not be in financial health to support such a move while for your competition that is what their strategy is pegged on.
You have to be you. This means even in the face of great pressure. Go back to your business point of differentiation. What makes your business products/services different from others?
Cost control, lack of
Small businesses are mainly concern by answers to operational questions. One of these is keeping expenses down. But for many entrepreneurs in Kenya, the issue of expenses only becomes a concern when business is performing badly.
One reason expenses go up over the holidays is the cost of putting your products out there. And sometimes it’s because small businesses want to experiment with marketing platforms. Another reason is because they extend their jolly to business operations and decide to splurge.
Poor control of costs is perhaps because women entrepreneurs do not know what they want. You need to clearly define your objectives. Another tool for you is converting fixed costs into variable costs – part-time employees, outsourcing, etc.