13 Reasons Why (Wholesale) Small Business Fail
Business is tough as shit.
There are often 10 times more reasons why a business should fail than why it should survive and thrive.
From my experience running a custom t-shirt printing business, these are the 13 most common reasons why a wholesale and distribution business fails:
Reasons Why Wholesale Businesses Fail
1. Playing in an Extremely Red Ocean – Bad Margin
Competition drives cost down.
If you’re selling generic items, customers barely stick to you and they’re always looking for cheaper suppliers. I’m a victim of this.
Despite many business gurus telling you that if you provide great service, customers will stick, it is only true to a certain extent.
In this hyper-competitive business landscape, I can tell you that prices will win most of the time.
2. Not Keeping an Eye on Extended Credit
Another huge killer of a wholesale business is giving too much and too long credit terms just to secure a deal or to retain an old customer. I was far too generous with my credit terms in my t-shirt printing business. If you do not have a proper process of tracking all the credit terms, you’re in for big trouble.
Accounting systems or order management apps like EMERGE App help you to keep an eye on your credit, making sure you do not fall into the credit crunch.
3. Missing Out on Billing Customers or Over Paying Suppliers
It may sound unbelievable, but it is more common than you think. Procrastination and disorganization can all lead to this.
When you have purchase orders from customers flooding in and you’re shipping out your products at high volume, and together with the lack of labor to process all your paperwork, it’s really easy to miss invoicing a few purchase orders or two that you shipped out.
This happened to me on a regular basis in business. Again, EMERGE App’s workflow ensures that such things will not happen. If you’re using the EMERGE Cart features, customers can indent your products they want directly from the app into your system.
Hence, there’s no way that you will miss an invoice or shipment.
4. Too Much Dead Stock
When dealing in fast moving consumer goods, market demand may change in an instant or season and it will leave you with heaps of dead stock lying around.
The stock is literally money.
They constrict your cash flow so it’s really important to know what is in your inventory and slash prices to clear them whenever you feel a change in market demand.
It all starts with really great foresight and knowing your inventory real time.
How do you do this?
You use an inventory management system like EMERGE App that gives you a heads up on your inventory levels and the flow and ebb of your stock.
Its standard use of a perpetual stock valuation method and first-in, first-out principles means that costings and reports are much more accurate.
You may also like this – Methods to Handle Deadstock
5. Hiring Ineffective Sales Reps
You know them right?
They sell themselves backward during the interview but afterward, they can’t sell your products to your customers. They tell you next month will be better and they need more time…a very typical case!
They say a great sales rep can make or break your company.
Set targets and make sure that your sales reps hit them or otherwise let them go without hesitation. You will never know when the next sales rep you hire could be a rock-star that will take your business to the next level!
6. Best Sales Reps Moving to a Competitor & Bringing Customers Over
Sales reps come and go and your industry is smaller than you think!
I’ve come across so many cases where reps leave and their customers readily follow. After all, your reps represent the face of your business and your customers have been dealing with them. This can be detrimental to your business as great reps could be servicing the majority of your clients.
I know what you think. Asking reps to sign non-compete clauses is not practical as it’s way too difficult to get great reps to commit because they might only be proficient in the industry you’re in.
Have a solid process to retain great reps and share a bigger slice of the pie with them to eliminate the possibility of them moving to a competitor.
7. Employee Leaving & Starting a Competing Business
Similar to reps moving to a competitor, great reps starting a competing business may quickly put you out of business.
They know your business inside out and they’ve already brought over a good chunk of your customers, too!
Plus, being sales reps you never know what stories or untruths they are saying about your business in order to entice regular customers to follow them. Once seeds of distrust are sown, it’s very difficult to shake off rumors.
Again, you need a system in place to reward sales reps who stay with you.
Perhaps a system that progressively rewards them for staying with your business. Be generous and share the profits in your business, or they may disappear when your best performers leave.
8. Sudden Fluctuation In Currency Exchange Rate
If you’re extending credit terms in a fixed currency, a sudden negative fluctuation in exchange rates corresponding to your purchase currency could erode your margins or even leave you belly up.
Do make sure that you leave enough margin for currency fluctuations. And remember, do not extend too long a credit term!
9. Too High Product Loan Interest Rate
If you’re financing your inventory with credits, you have to make sure you keep your eye on cash flow, sales and margins really, really closely.
Although sometimes in business, it is either all or nothing, defaulting on your loans may snowball penalty fees really quickly. This erodes more of your margins — if you have any left. Trust your foresight and gut feel but put in extra hours to be conscientious of the cash flow.
10. Supplier Product Drops In Quality
Have you realized recently that your customers are complaining about your product’s quality or returns are increasing?
If you’re buying from a manufacturer or a supplier, this is a tell-tale sign that their quality has dropped. Listen closely to your customers.
If you’re not speaking with your customers directly, please ask your reps to provide you with feedback on a daily basis.
Build a closed feedback loop with your suppliers, too. If they simply brush you off, it may be time to look for another manufacturer or distribute another product. Act quickly!
11. Supplier Not Extending Credit
It’s really difficult to get suppliers to extend you credit when you have just started buying stocks from them.
Hence, you need to make sure you have enough liquidity to pull through your cash flow until your supplier decides to extend you a longer credit term.
You will also need to spend more time with suppliers to gain more of their trust and that you are serious about pushing sales for their product.
Action often speaks louder than words!
12. Skyrocketing Shipping Cost
In recent years, shipping costs have been pretty modest with low fuel prices.
Hence, this should not be a problem unless you are shipping unique products that require chartering of ships or barges, or you’re dealing in perishable or fragile products that require air shipping.
13. Inventory Lost Without Insurance Coverage
Finally, this is the most unlikely event and yet the most taken for granted. A breakout fire could wipe everything that you have worked so hard for. Depending on your product, insurance fees are pretty low. Please have yourself covered. Don’t skip this!
Well, there are many other reasons a wholesale business could fail but these are just the more common ones.
Business is tough and there’s no magic pill.
But you can certainly make use of technology to lower the risk of catastrophic failures such as investing in a wholesale order, purchase, and inventory management system.
See you around!