When you’re a business owner, you’re not your own boss; you actually work for your customer. Without customers, clients, contracts, etc., there’s no revenue and, no business. But not all business is good business. There are circumstances in which business owners should turn down revenue for the betterment of their enterprise. Lawrence Gelburd, lecturer at The Wharton School, University of Pennsylvania, contributor to MSNBC’s Your Business, and a member of AOL’s Small Business Board of Directors, offers these guidelines to help entrepreneurs determine when to just say no.
1. If you can’t meet quality or timetable requirements. There’s a great temptation to take revenues and worry about the fulfillment later. “But if you’re not truly confident you can get the job done with the quality and timeframe you need and your customer expects, as painful as it is, turn the money down,” says Gelburd.
2. If you can’t afford to deal with noncompliance. A contract may be a legal document, but the reality is if your company does not have the leverage to go to court and enforce a contract and all the appeals, time, and energy it takes, it might not be worth pursuing. “If you can change the terms of the contract so you can get a down payment which is sufficient to cover the costs of contract fulfillment, you may not make money if the second half doesn’t come, but at least you’re not out of pocket,” Gelburd advises. “First-time entrepreneurs often believe in the sanctity of the contract and often don’t see it as [simply] a road map.”
3. If the customer is controversial. If some of your customers are very concerned about morals or ethics, they might be disappointed to learn you signed a contract or partnered with an inappropriate client. “So you have to determine how the new client fits in with your portfolio of existing clients,” he says. Those you do business with should be aligned with your company’s mission, vision, and values.
4. When a customer is a very large portion of your revenues. “It’s not that you should necessarily turn it down, but once a customer is more than 25% of revenues, you should be a little uncomfortable. And when it’s more than 30%, you should definitely be investigating the situation carefully,” suggests Gelburd. “Not having a diversified revenue stream can be risky.” In this case, he suggests identifying a subcontractor or partner to mitigate that exposure.
5. When ongoing support costs are undefined or too large. Sometimes clients will tack on requests for ongoing support after signing a contract. While this may sound minor, the costs can quickly add up. If you fulfill the requests, it cuts into the profitability of that contract, but if you don’t, you risk displeasing the customer. “The time to define all the ongoing support and costs is prior to signing the contract,” urges Gelburd. “You can put in language that says if the support hours get above a certain number then the client will pay a certain amount.” Protect yourself and your business.