Why taking a new customer is not good business

Growing bank or growing business?

Which comes first? Should you grow your bank so that you could grow your business? Or is the other way around? Should you grow your business and then see your bank growing?

What if these two are not interrelated?

What if you may grow your bank and grow your business? Or what if you grow your business and then see your bank growing?

What if you have been growing business the bank remains blank?

Lets go a little further into this

Growing business means acquiring more customers. Most of CEOs and SME founders are looking into getting deals with large customers, in entering mass distribution channel. This is not without pitfalls!

Lets take the case you are selling equipment to be used in technical installations. Some of your products are highly technical, so you only sell them through technicians, but some others are not so technical and you are considering DIYs. However, should this be the case?

There are a number of hidden costs that you should translate into numbers and cross check with overall profitability. For instance, it might be the case that the DIY requires an upfront initializing installment. For instance 10.000 E. Another point is the minimum inventory required. Suppose that the DIY asks 4 months of monthly target sales held as inventory. Furthermore, consider that this inventory is not to be invoiced, but sent and held as consignment. Therefore, all costs, including financing and insuring are held from your part. Now, assume that you agree to a 120 day credit, starting from the day that the inventory leaves the warehouse and goes into the main selling space (selling floor).

Assume that your vendors required 30 day payment. However, given this new agreement, which would end into massive purchase orders to your vendors, you re-negotiate with them and some give you cash discount while others give you 60 days credit.

What do you think? So far, how does this agreement seem to you? Do you think that it would make sense to enter into that channel? Under what circumstances you would expect to make a profit and a positive cash flow?