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Fields of Failure: Build it and They Will Come January 1, 2012

Posted by David Dirks in business strategy, Uncategorized.
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Here’s a scenario I see played out more often than not:

Local business owner decides it’s time to make a capital investment into their business and expand it one one fashion or another.  The banker is called in and they evaluate the loan package.  The banker’s first pass: will they be able to pay us back for the loan?  Of course, this is a good question for any loan.  All the ratio’s are calculated and analyzed in depth.  Cash flow calculations are made and discussed throughly.  The numbers are crunched and the loan is deemed approved by the higher powers at the bank.  All’s good right?

In most cases the answer is no, things are not good.  Why?  I can’t tell you how many businesses have been loaned money only to see the expansion fail and the loan gone defunct.  What could go wrong when all the right ratio’s where calculated and the cash flows necessary to pay the loan back deemed appropriate?

Plenty.  First and foremost, how much of the loan was set aside for marketing and promotion for the new expansion?  In too many cases that I’ve observed, there was little or no appropriation for marketing and promotional expenses.

Build it and they will come?  Not.

You spend time, effort and money on expanding your capacity to conduct more business and no one will know about it.  So focused and intense was the effort to make sure the expansion gets built right that marketing and promotion is pretty much an afterthought.

If your banker isn’t hounding you about what your marketing and promotional plan is for your great expansion, they aren’t doing their job.  If you don’t dedicate a healthy amount of your loan proceeds for marketing, then you aren’t doing your job.

Here are two takeaways:

1.  Every project, expansion or new build, takes longer to build and usually costs more than we plan for.  We end up with a finished project but with little or no money for marketing and promoting it.

2.  As a  rule of thumb, look to allocate and reserve at least 15 to 20% of your capital investment for marketing and promotional expenses.  If you end up spending that allocation because of cost overruns, you’d better figure out how to get the promotion done on a shoe string.

3.  Develop your marketing and promotional plan before the project work for the expansion begins.

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