I was asked to attend a meeting of creditors with respect to the Ellerines business rescue in early August. There were hundreds of very grim faced people there, although I don’t know who was an employee and who was a general creditor, and so on. Judging by some of the questions from the floor, there are some small business people creditors, for whom this is their major, and possibly only customer.
The meeting highlighted for me the exposure small businesses tend to have in not spreading their wings to a much wider base of customers, as difficult as it is to do so. Prospective buyers of businesses are likely to be limited to industry investors in such circumstances; competitors with similar problems, looking to grow and spread their own risk through acquisition.
Unfortunately, in such circumstances, selling prices are always low. The alternative to selling is to cling on for as long as possible, and hope you don’t lose that one really big customer.
Anyway, back to Ellerines, which is reportedly shedding 500 branches this month, in order to make itself a viable entity. That is 500 fewer branches through which suppliers can expect their goods to reach the consumer.
Just another reason for you to look carefully at how many different customers you have, and which of them may be vulnerable to either becoming insolvent or moving to another supplier of whatever it is you make or supply.
Cannot agree with you more.
The acid test is to take your largest client, (or possibly the two largest), deduct their earnings from your turnover and if you can operate without having to retrench, reorganise, sell your children into child labour or fake your own death your good to go. If you have to reorganise in respect of your current business organisation, your in potential trouble.
I have already accepted that we will lose our invoiced values from Ellerines and I have placed their contract base on hold. Sometimes it costs more to try and recover debt which can decimate overhead recovery and ultimately starts to eat into the profit margin. We have written their debt off despite their promises of “expected late payment”.
African Bank is, in my opinion, a classic example of targeting a high risk specific market sector rather than an overall potential customer base.