subject: Sales Are Increasing But Revenue Remain Stagnate – 3 ways to improve [print this page] Sales Are Increasing But Revenue Remain Stagnate 3 ways to improve
Many growing businesses tend to get myopic regarding their top line sales. And, it is hard to blame them as this is what they are working so hard for - increasing sales is essentially the core of business.
The problem is that a one-sided view of sales can be detrimental to the rest of the business; forcing your company to grow itself broke. While sales increase period over period, actual revenue (cash into the business) seems to lag these sales and the business soon finds itself unable to meet current obligations like paying suppliers, meeting payroll or even generating enough profit to plow back into the organization to sustain its current growth rate.
The most singular cause of this problem is poor cash flow management. Unless all sales are in the form of cash there tends to be a lagging factor in turning sales into actual revenue. This lag can come in the form of payment delays after invoices are sent to customers or from trade terms allowing customers 30 days or more to pay you.
What these payment delays do is turn your business upside down in regards to meeting its own obligations. You have new sales on the books but not the cash to pay your suppliers, vendors or employees. While it may be common practice to allow your customers to delay payment for 30 days or more your bank, suppliers or employees will not offer your business those same terms they want to get paid right NOW!
Just know that this is an age old problem and you are not alone. Here are three simple steps business owners can take now to improve their cash flow and not grow their business broke:
When faced with this situation, business owners must start to focus on actual cash flow into and out of the business.
1) The first way to better manage your business's cash flow is to attempt to match all out-going cash with all incoming cash. Example, if your business must allow its customers 30 days to pay or you won't have their business, then try to match your obligations (your expenses) with that same 30 day period by asking your suppliers for 30 days trade terms on the supplies you purchase or taking advantage of any and all vendor payment grace periods. Be persistent here and your business will eventually win out.
Further, you can also offer discounts to customers who pay in cash at the time of sale. The goal is to match your incoming cash (payments) with the expenses you cannot delay.
2) You can factor your invoices to receive needed cash today to meet your business's obligations. Then, when your customers do pay you, your business can repay the advance. The same is true with your purchase orders. With orders in hand, your business could receive up to 100% of the purchase order amount to pay for supplies or labor. Then upon completion of the job and receipt of payment you can repay the advance and pocket the profits. This puts cash in your business today allowing you to cover immediate obligations.
The minimal costs associated with these advances are inconsequential given the alternative of not having the money (cash) on hand to pay your current bills.
3) Collections. Some customers just don't like to pay; they either can't pay or like to push boundaries and extend their payments as long as they can. Collecting from customers can be extremely time consuming and costly (not just in expense but in the possibility of losing a customer). But know this, when customers don't pay they are not customers your business wants or can afford to have.
A strong collection policy (outlined when an agreement is made with the customer) can go a long way to improving your cash flow and your business's ability to meet current obligations. If your business can't do this in-house you can either purchase a package of software that will help with this process or outsource your collections to the many companies that make this their business. Most collection agencies only get paid when they collect for your business. Think of it this way: It is much better to get 50% of what you are owed than get 100% of nothing when customers don't pay.
No matter which way you go, always start in house with a few phone calls or written reminders before outsourcing. The goal is to first collect your payments and keep the customer. If that becomes impossible, then the goal is to simply collect as much of what your business is owed as possible.
While growing sales should be one of the core focuses of your business it should never come at the expense of the overall business. What a hard realization it is to know that your business model worked but could not be sustained simply because of a lack of proper cash flow and working capital management.
Focus on cash and never face the complication of growing your business broke!
