Tag Archive for 'sales growth'

The irony of successful sales growth

The following scenario plays out every day on Main Street:

“My business is really growing these days,” a small business owner confides to his friend, “but we’re still experiencing too much negative cash.”

And then, with that deer-in-the-headlights look on his face, he completes his concern, “I thought by now, with sales and profits up, cash flow would be the least of my worries. I used to be afraid I couldn’t grow my business; now I’m worried that’ll collapse.”

This entrepreneur’s lament is one of the great ironies of the marketplace; a small business in danger of failure as a result of extreme success.

Beware Blasingame’s 2nd Law of Small Business: It’s redundant to say, “undercapitalized small business.” This maxim is especially true for growing small companies because sales volume growth depletes cash in two dramatic but predictable ways.

1.  When the business is growing, organizational upgrades are to be expected in order to handle the new demands: new vehicles, staff, technology, etc. Of course, you must fund these things, often before the newfound success has made it to the bank.

2.  Selling to customers on an open account—where payment for work or products is collected after delivery—is essentially making loans to customers. And while it’s true that vendors may let you do the same, typically they allow less time to pay than you allow your customers. The difference between when you pay and when you collect creates a negative cash condition.

Here’s how to manage these challenges.

1.  Growth plans must be compatible with the ability to fund that growth.

Too often we think the big growth hurdle is getting customers to say yes. But the impact of sales growth on cash flow must consider before delivering a proposal. If you can’t fund the opportunity, you shouldn’t go after it.

2.  Don’t use operating cash to fund acquisition of capital assets, like equipment, etc.

Capital purchases should probably be funded by bank debt, and the interest is the cost of Blasingame’s 2nd Law. If you don’t like debt or paying interest, that should motivate you to leave profits in the business as retained earnings, which is the best way to overcome being undercapitalized.

3.  Monitor the relationship between AR & AP.

Understanding the relationship between Accounts Receivable Days and Accounts Payable Days is an “a-ha” moment for every business owner. This ratio must be monitored for sustainable growth.

Write this on a rock … It is possible to succeed yourself out of business.

Small Business Advocate Poll: What does the rest of 2012 look like?

The Question
Regarding sales projections for second half of 2012, how does it compare to actual sales in the first half?

20% - So far, the second half is looking stronger.

34% - It’s not looking as good as the first half.

46% - About the same.

My Comments
Gross Domestic Product (GDP) is the measurement of the performance of the U.S. economy based on activity within the geographic boundaries of the country. Gross National Product (GNP) is GDP plus the performance of all U.S.-based interests conducted abroad.

So the business GM, Caterpillar, IBM, and Bubba’s Lawn Service does within our borders rolls up to GDP, and is then added to what GM, Caterpillar and IBM does in the EU, China, etc., to calculate GNP.

This week, GDP results were released by the government and it showed the U.S. economy grew at only 1.5% in the second quarter of 2012. That was down from the 1.8% GDP figures for Q1 2012.

For years it has been generally held that 3% annual GDP was the baseline for acceptable U.S. economic performance. These last two reports put the average for the first half of 2012 at 1.65%, essentially half of that baseline.

We wanted to see what the second half of this year was looking like based on what our small business audience is seeing, so last week we asked this question in our online poll: “Regarding sales projections for second half of 2012, how does it compare to actual sales in the first half?” Here’s what we learned:

One in five said, “So far, the second half is looking stronger,” while more than a third of our sample reported from the other end of the spectrum with, “It’s not looking as good as the first half.” The middle group came in at 46% who said they expected the rest of 2012 to be “About the same” as the first half.

Based on YTD GDP, and looking at the recent survey of our audience of small businesses, the 2012 economy could wind up being weaker than either of the previous two. That’s not the kind of trend Americans expect and, under the circumstances, certainly not what we need.

There are many structural issues remaining that we have to work through in order to achieve a more robust economy. But the greatest impediment to sustained economic expansion in America today is the uncertainty that has been pervasive on Main Street since 2008.

Structural challenges can be removed with the healing properties of performance. But pervasive uncertainty - caused more than anything else by a lack of confidence in national leadership and their policies - can only be fixed when those leaders demonstrate that service to country is more important than service to party.

Check out more great SBA content HERE!

Take this week’s poll HERE!

Small business economics

Two years after the technical end of the Great Recession, the U.S. economy is still struggling to recover. It’s clear that the residual of the causes of this downturn have yet to be absorbed. In fact, GDP growth for 2011 is tracking at a slower pace than last year.

As we’ve done periodically in the past year, we recently asked our audiences about their experience in the economy right now. We asked, “Based on your small business right now, which of the following most closely fits the economic conditions you’re experiencing?”

The first choice, “Up - our business is good,” was chosen by barely more than one in ten of our respondents. This is pretty close to the top response in the last poll we took.

The middle question, “Flat - we’re doing okay, but growth is slow,” was the big group, coming in at 65% of our sample. The last options, “Down - we’re barely holding on,” was admitted by almost one-fourth of our respondents.

With almost 90% percent of our poll participants reporting either slow or no growth, this, unfortunately seems to track pretty close with other polls I report about on my radio program, The Small Business Advocate Show, as well as the national economic indicators.

It’s clear to me that the U.S. economy is not going to grow until small businesses are able to grow.  What part of this is lost on the so-called leaders in Washington who are doing more than anyone to dampen the enthusiasm of America’s marketplace heroes, small business owners?

How do you feel about what our political leaders are doing to stimulate the economy?

I talked more about the economy and small business on my radio program, The Small Business Advocate. Take a few minutes to listen…

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