Remember when you were a child and played with your ‘Slinky’ spring, watching it gradually climb down the stairs?
Your business is not much different.
If everything is looked after properly then your business will stretch and contract as it overcomes each obstacle in its way, as it does so it moves smoothly and efficiently. Pretty much as your slinky did as it came down the stairs.
Don’t Overstretch It
Now go back to your slinky and twist or overstretch it, suddenly it goes nowhere, hits one stair and then falls over. You have pushed it too far and overstretched your resource.
Your business is no different.
The theory here is simple. The reality is that few businesses are prepared or aware of when they are overstretching or are too late to realise it is actually happening.
Take cash flow. You are generally OK, operate within your credit limits, see some debtors paying late but can generally work with it.
You then take on a new client, bigger than usual, great profit margin, potential for growth, so happy days all round.
You order in the raw materials, pay some overtime to get things going, increase equipment to cater with the new client, start putting more resources towards your most profitable new client etc.
All good so far. So where is the overstretch?
The same new client then changes the order slightly and pays later than terms allow. At the same time your existing clients are seeing a slower response as resources have been diverted.
This is your overstretch.
Unfortunately most small businesses do not have the systems in place to spot periods of pressure or periods of risk. They normally happen when things are going really well, which is when the eye is taken off objective management and focuses on task management.
If you want to know more about spotting periods of pressure, or overstretch, then make the most of our business resources – get in touch via the website, add your comments to the post, or call us and we will walk you through getting structures in place to identify and manage these areas.