When people talk about having all their eggs in one basket it can mean many things. A lot of times it relates to Investments, Career Choices or other personal matters. But the same is true for businesses. Are you aware of these business risks, and doing something to protect your business from an inevitable crash, or are you following Humpty Dumpty’s advice?
Here are some areas you should consider in your planning:
Customer Concentration is an easy one to understand. If you have only one or two primary customers, your business is based on the stability of those customers. If either of those customers failed, you might fail as well. You shouldn’t have more than 20% of your business with any individual customer. If a 20% customer failed, you would certainly feel it, but you could survive. More than that and survival might be difficult. I worked for a very profitable distributor for many years. They had two customers, Sears and Grainger. Solid, reliable customers. Sears was 75% of our business and Grainer 25%. As Sears started to fail, our margins got squeezed. Then a change in staff at the retail giant brought in a new Purchasing Agent that didn’t connect with our President. When he started moving our products to other suppliers, my employer went out of business.
Leadership drives any business. Is your leadership concentrated in one office? A business owner recently purchased a manufacturing company. The COO, who was also the CFO prior to the purchase, was so good at his job that the owner gave him the role of CEO as well. Six months later, this CEO/CFO/COO passed away, and there was nobody in the wings to take over. The owner is not only looking for a replacement, but trying to figure out what needs to be done daily to run the business. Concentrating too many responsibilities in one person can be disastrous.
Staffing takes care of the running of your business day in and day out. Does more than one person in your company know how to do order processing, invoicing, payroll and processing cash? It’s a matter of internal controls, but also a matter of protecting your business. One business owner I know has an office manager that does Payroll, Payables and Cash Receipts. She never takes a vacation and is the only one that knows how to do those responsibilities. The owner was really concerned about who would do payroll if something happened to her. But truth be told, this is really risky on so many levels. Be sure that you have cross-trained staff so that you’re not dependent on just one person for critical tasks.
Products – It’s probably the rare company that only has a single product. Many start-ups have only a single offering in the beginning. Whether you are a manufacturer, distributor or service company, do you think in terms of what services you provide? Do you have multiple streams of revenue? If all of your services or products are in a single family, or serve a single customer type, you are at greater risk. Market shifts or changing tastes can have a dramatic impact on your ability to sell.
Financial Resources – How many banks do you know well, and do business with? How many credit cards do you have? If all of your funding opportunities are wrapped up in one basket, you may have limited opportunities to expand your business or find extra cash when you need it.
Technology – If you have only one computer, if your data is all stored on a single computer, or if you only do one backup, you have all your IT eggs in one basket. Conventional wisdom is that it’s not a matter of if your computer will break down, but when. And as technology changes, you’re uneasy about spending the money to upgrade – again. You’re at greater risk. I have two computers, a desktop and laptop. Both have been reliable for more than 5 years, and each crashed in the past six months. Bad planning? Bad Karma? I don’t know, but I do know one thing. Too many eggs in one basket.
There are always risks, roadblocks, and challenges that present themselves to every business owner. Some are because of changes in the market or economic climate that you can’t predict or control. But you can ease or eliminate that impact by understanding if you have all of your eggs in one basket. By understanding your business’ potential potholes, you can avoid becoming Humpty Dumpty.
CEO of CFO Simplified, Larry Chester, was recently featured on Dave Lorenzo's Inside BS Show. During the show, they discuss
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