How Increasing Sales Equals Negative Cash-flow

Most business owners are consistently seeking more sales to grow their business. The mantra of growth is one that echoes around the world as the only path forward.  The trouble is, while a lot of time is put into making more sales, many business owners forget about a situation of ‘What if it actually works?”

What I mean is this.  If you generally sell $100,000 work of your product per month and suddenly you ramp up to $300,000 a month, how will you cope? Plenty of owners will say ‘’oh I’ll just deal with that when it happens’’.   Unfortunately when it happens you may find yourself scrambling for employees, materials and the money to finance it.

‘’But won’t the profits finance it?”

Well, no they won’t.   It’s your cash-flow that’s important here.  If your pricing is right and costs are under control then the profit will happen.  It’s the in-between you need to think about.

Let’s take growth to $300,000 a month as an example.   How much more in materials or product will you need to actually deliver on tripling your sales?  How will you pay for it?   When will you be paid by your customer and what happens if you deliver on your side, but the client doesn’t pay at all?   There is no profit in a sale that isn’t paid for.  Will you need a larger premises for manufacturing or stock holdings?

As you pay for each of these, or at least create the debt in ordering stock and employing people, your bank balance depletes and all you need is one of your clients to miss a payment and you are now behind the eight ball.

Facilities such as Trade Finance (Domestic and International) can help you buy more stock and provide you with up to 90 days to pay it off.  Debtor Finance can help you draw down cash against invoices that your client hasn’t paid yet.  Debtor Insurance can help you lower your risk in case your client cannot pay you.

If you are expanding your business and want more sales, make sure that you plan your cash-flow, recognise the gaps now and ask for the money before-hand.   Attempting to search for the right facilities when you have suppliers putting you on hold or cash upfront payments only, clients that haven’t paid yet and wages bills to meet will only increase the pressure.

The tools and facilities to help you through this are available, just ask.

Don’t be the business owner that failed because they sold too much!

 

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