Following on from last week’s Nudge subject of Cash Flow;
Most business owners would instinctively think that increasing sales is the first step to increasing cash flow.
Unfortunately driving sales up without a thorough approach to cash flow and profit management has the ability to make everybody else rich, (suppliers, staff, freight companies, landlords etc), but you.
You see, in order to manage the growth, more staff will be needed, more taxes payable, more plant and equipment necessary, a higher inventory required, and of course more sales means a corresponding rise in the cost of freight and postage.
More often than not, it pays to cut back on volume. Eliminate unprofitable products and services, and alter the economics.
While it’s natural to want to grow your business, the process requires a STRATEGIC approach!
Remember there are usually more opportunities than there are resources, so choose to grow strategically based on those products and services that provide the best margins and cash flow.
I am associated with a gentleman who used to be in the wholesale distribution business. For many years, he had a very clear m.o. and that was to build sales rapidly and cash out for big $$$, usually within three to five years.
Because he focused so intensely on sales growth, his sales would often triple. But as a direct result, so would his staff and his stock level; in fact he often had to find new premises to accommodate such massive growth. Boy is shifting premises a nightmare!
Having survived a number of such growth spurts, at great expense, not least of all to the state of health of both him and his wife, he swore to me he would never again repeat the same exhausting and often-counterproductive scenario. True to his word, they recently bought a small wholesale business they could run alone, with just a few part timers. I know they have no intention of ‘growth for growth’s sake’ with this business or ever again.