Sales growth

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Sales growth between good and bad

In an earlier post, I was talking about cash flow management and made also some references to the main levers of cash flow. One of those levers is sales growth.

Sales growth is the actual increase in sales volume from one period to the next .

I was mentioning in the title sales growth between good and bad for a reason , sales growth is very expected from any company and it is the normal way of prospering business operations.

Sales is good , it makes everybody happy , right ? Not exactly , let’s focus a little on what sales is bringing .

Sales is getting us the following positives :

  • increase in sales volume
  • increase in cash in flow
  • increase in purchasing volume for raw materials and auxiliary materials
  • increase in headcount utilization

Sales growth can also get us in trouble because of the following :

  • increase in utilization of immediate available raw materials, auxiliary materials, machines and headcount
    • here we a first very important bottle neck . Non of the mentioned resources can not be made available in the short term. For raw materials, auxiliary materials and machines you need to place purchase orders with your suppliers. The supplier might have the ordered materials on stock or not , if not you have to be patient and wait for the delivery time to receive your order. For the sudden increase in headcount, you might find some solutions. If you don’t have specialized work in your production process you can lease the headcount. If you have specialized work in your production process you have to go through a recruiting process that might take some time until the proper people are found.
  • all the increase in sales must be sustained also by the much needed realistic cash flow and financial resources.
    • at this stage, your cash flow must cover the “old” demand plus the new increase . This results in a financing and cash flow deficit that needs your undivided attention. You must synchronise your coming cash flow with the additional needs and you must assure additional funding through various financing alternatives ( shareholders, banks, etc )

Imagine and judge the following scenario. Please try to answer to the following question :

Do you accept the new order without any changes ?

Company XYZ is present at a trade show with all it’s products and a new promoted product. 

The company had a yearly turnover of 10 Mio EUR  is at 95% capacity and a yearly increase in sales of ~5%. 

The new orders from the trade show  sum up 4 Mio EUR and need to be delivered in the first quarter of the next year. 

As you can see it is not that easy to accept the new orders without any changes. If you did not plan ahead to increase capacity you are in a not so pleasant situation.

The conclusion is that sales growth is very good if it is planned and needed resources are forecasted and  made available to cover the increase in sales volume.

This kind of sales growth for a company is extremely consuming for any company in terms of resources, financing means and headcount.

So sales growth can be also bad if it is too sudden.

Therefore plan you growth in order not to get under pressure.

TopCFO can help you get through all this delicate and tricky aspects of developing your business.

Get in contact with us and let us know how we can help.

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