Call Don today: 951-533-4966


Don Welker's Financial Minute

Mar 14, 2016, 6:17 PM


Quite often I talk to businesses that have big plans for growing sales, which is great. But what many business owners don’t realize is that if you don’t have adequate resources, that phenomenal sales growth can put you out of business. Before you embark on a big new sales campaign, you first need to determine if you have the capacity to handle a significant increase in sales. For example:

  • Do you have the people in place to handle the anticipated increase? A big increase in sales can impact every department of your company, from manufacturing, warehousing and shipping to accounting, marketing and administrative support. If your current staff is already operating at capacity, how will you handle the increased work load?

  • Do you have any idea how the increased sales will impact your expenses? As you increase sales you’ll also increase your costs for raw materials, products purchased for resale, etc. But the increases don’t stop there. Will you require more insurance coverage? Will you need to purchase equipment or hire more people? Will increasing head count mean that there are now more government regulations that you must meet? And so forth.

  • Do you have the credit in place to pay for this sales growth? Most businesses have two types of credit: “financed credit,” through banks or other lenders, and “unfinanced credit,” meaning credit limits with suppliers. While I’ll delve into this further in my next article, suffice it to say that as your sales and expenses grow, you’ll have to expand your credit somehow in order to meet your increased cash flow needs.

  • Do you have the ability to meet increased reporting demands? What I often see is that prior to a big increase in sales, the amount of credit that a company requires might keep them in one “rules category” with their lenders. Then they need more credit, and suddenly the bank wants to restructure the loan covenants and start seeing projections and monthly reporting on receivables. Creditors want to see the hard numbers that will make them feel comfortable that you’re going to be able to repay them. Many organizations, especially those that do not have a CFO, do not have the capacity to produce these reports.

Growth is good – provided it’s strategic growth for which you have planned. Skip the planning phase, though, and you run the risk of growing yourself out of business.

Loading Conversation