So many of our clients run smaller to medium sized production or import/export businesses.
And right now their biggest issues are the inflation and delivery time from their suppliers.
Which then ripples down to our clients end-users and customers.
So here is a very good example from one of our clients who sells boat motors.
He has to wait 10 months for deliveries from his supplier for these motors.
If he has now 2 million dollars in orders in from his customers in April 2022 for deliveries in February 2023.
How can he be sure?, that these customers will still be in business in February 2023?.
And what happens to his business if half of his customers will cancel their orders midway for do not accept delivery in February 2023 when he can supply.
We have said to all of our production clients that they need to analyze each of their customers individually when we are living in this long delivery time world, and also living with high a inflation rate.
We usually tell our clients to use the proforma(prepayment) option for those clients the are unsure of.
So let us say that our client sells a motor for 10.000 dollars, his purchase price is 7.000 dollars, from his supplier.
Then a good business model is to ask the customer to pay 50% upfront(5000)dollars.
This way our client only has a 2000 dollar in exposure, if the customer is not around when the motor is ready for delivery.
This is a tough sell, we know this, but it is the only way you should work on if you are not very profitable and have a lot of money stashed aside in your rainy day fund, guess what its raining!.
Because if you as a small business owner buy products on credit and then your customers wont accept delivery, you are in a very bad place!.
Then how do you deal with the inflation, if you have 10+ months delivery time from your suppliers, which is not uncommon in April 2022.
What you do is that you make an agreement with your supplier on a fixed price, with a maximum 10% mark up option for them, during this time period.
Then you raise your price by the same 10% towards your customers.
If your supplier refuses to accept this, and they work on price level on the delivery date, you need to figure out what that price could be.
We recommend our clients to add 15% then on to the price due to inflation and in the worst case scenario they need to eat the cost themselves, if the 15% does not cover the price hikes on the delivery day.
Some bigger suppliers will honor quotes given the same year of the delivery.
And some will say that you will get the final price on the date of your delivery.
It is very difficult to be a small business owner these days with the enhanced credit risk when you do not know who will be around 10+ months from now, and who will not be around.
We advise all clients to not make a deal with a new customer unless they get at least 50% of the invoice amount upfront.
We have also told all of our clients that they need to count that 30% of their orders might end up in stock, if there is no customer alive on the other side, once they can deliver the products in the future.
With the insane energy costs and a raging war in Ukraine the world is in chaos right now!.
So you need as a small business owner to take action to protect your lives work.
So inflation and delivery security is at play globally right now and it is not pretty to watch from the sidelines.
If you ask us, which our clients do, we have told them that the recession is coming later this year and they need to be prepared.
If you need business consulting we are here for you.
You can find our different packages in our shop, and you can also email us for a customized package if you need that.
Here is also a link to one of our clients sites if you are looking to lose-weight this year.
They do a really good job with their clients.