Article

216 partners in 40 states
6,474 years experience

Fill out the form and receive for FREE The Discovery Analysis (a $1600 value)

Growth is good, right? - Mar 6, 2010

Posted by: Wendy Nelson in Articles

If you are fortunate enough to find that your business has moved back into a growth phase or you are beginning to see accelerated growth in early 2010, congratulations. This is good news and could signal a reduction of the impact of the recession on your bottom line. It also means you’ve got to keep a close eye on your bank account.

Increases in revenue are good, but if not monitored carefully, the improvement to your bottom line may be less than you anticipated. Please find a few scenarios below to consider:

Revenue is increasing, but not as fast as unit sales – you may need to review the profitability of your individual products to ensure that you are focusing the right amount of attention on each product. If you’re seeing movement in low end merchandise, consider motivating your sales force with stronger incentives around growth in your higher profit product lines
Gross revenue is up, but gross margin isn’t – is it time to review your vendor pricing and put some components up for bid? Have you seen an increase in vendor control over pricing, necessitating a review of end consumer pricing? Are you experiencing an increase in unit costs associated with volume reduction in 2009?
Revenue and Gross Margin have increased, but profits remain stagnant – Have you reviewed your staffing to ensure that the number of employees make sense, and their salaries are competitive? Have you seen contractual increases in facilities expenses? Are accruals appropriate, or is their a possibility you’re building up some balances on the balance sheet? Do you have adequate internal controls established to minimize the potential for employee theft?

Even if all is well on the income statement, you may want to take a closer look at your balance sheet. Some items to consider include:

· Cash – Do you have enough cash to sustain the growth? In other words, if sales continue to accelerate and you need to hire additional employees, or purchase components for manufacturing or goods for resale, will you be able to meet demand?

· Accounts Receivable – Are you collecting quickly enough? Are there vendors that aren’t paying you in accordance with your terms? Is customer billing prepared and distributed in a timely manner?

· Accounts Payable – Do you pay your vendors on terms, or “as soon as the bill arrives”? While it’s important to maintain your credit rating, there is no real need to pay an invoice until it’s actually due (unless you receive a discount for early payment).

Taking the time to understand these items may save you from a lot of headaches down the road. In addition, if you are still looking at a future cash shortfall in spite of your attention to these details, the time to start seeking a line of credit is now.