Sales Are Increasing But Revenue Remain Stagnate - 3 ways to improve

Many growing businesses tend to get myopic regarding their top line sales. And, it is hard to blame them as this is what they are working so hard for - growing sales. Increasing sales is essentially the core of business.

The problem is that a one-sided view of sales can be detrimental to the rest of the business. Many businesses, far too many, have grown themselves broke. While sales increase period over period, actual revenue (cash into the business) seems to lag these sales and the business soon finds itself unable to meet current obligations like paying suppliers, meeting payroll or even generating enough profit to plow back into the organization to sustain their current growth.

The most singular cause of this problem is poor cash management. Unless all sales are in the form of cash (cash at time of sale) there tends to be a lagging factor in turning sales into actual cash - cash that flows into business's bank account. This lag can come in the form of payment delays where an invoice is sent to a customers who then has 30 days or more to pay (called trade credit), customers who don't pay and get away with it or from middle-men payment processors like credit card companies or companies like PayPal who not only delay your receipt of cash by a few days but skim off your profits in the form of their fees.

What these payment delays and fees do is turn you business upside down in regards to meeting your own obligations or in running your business. Example, while it may be common practice to allow your customers to delay payment for 30 days or more - your bank or employees will not offer your business those same terms. In fact, your employees, by law, must be paid on set schedules - schedules that may not fit in with your business's policy on giving customers trade credit. Thus, the dilemma.

Just know that this is an age old problem and you are not alone. Here are three simple steps business owners can take now to improve their cash flow and not grow their business broke:

The first thing any business owner should do when faced with this situation is start to focus on actual cash flow into the business. While getting new sales are great, if your business does not have the cash on hand to purchase those supplies or pay labor, your business will cease to exist.

The first way to better manage your business's cash flow is to attempt to match all out-going cash flow with all incoming cash flow. Example, if your business must allow customers 30 days to pay or you won't have their business, then try to match your obligations with that same 30 days - like asking your suppliers for 30 days trade terms on the supplies you purchase for that job or to fulfill that customers orders.

Now getting the same trade credit from your suppliers may not be easy but it is not impossible either. You just have to find ways to sweet talk them or sale them on your business's ability to be a long time payer in the market and a long-term customer of theirs. Be persistent and your business will eventually win out.

If you still find your suppliers unwilling to appease your needs, there are two alternatives. The first is to shop around for other suppliers - others who want to be your partner in business and will provide the trade terms your business needs. Or, factor your receivables or purchase orders to receive the cash you need today.

You can factor your invoices, receive needed cash today to meet your business's obligations then when your customers pay you, your business can repay the advance. The same is true with your purchase orders. With orders in hand, your business could receive up to 100% of the order amount to pay for supplies or labor. Then upon completion of the job and your business receiving payment - you can repay the advance and pocket the profits.

You could also try to reduce your trade terms to your suppliers but either only providing 10 days to pay or offering discounts like 2% off if paid within ten days (2% discount is much better than not paying your bills). The goal to make sure your business receives actual cash as soon as possible while delaying your payments as long as possible.

The second way to better manage cash flow is to better understand what those sales are costing your business. Credit card processing is getting more expensive every year and alternative payment processes like PayPal are also increasing their fees - in part because their costs are increasing.

Here, the best approach is to simply understand what those fees and costs are - in detail. By understand when and why you incur fees can either allow your business to make small changes to reduce current fees or to shop around and compare other providers - being able to compare apples with apples. While it might not seem like much to have 2% to 5% taken in fees while your sales are growing, those fees could actually be difference in your businesses ability to fully meet all of its obligations.

You could also provide discounts to customers who pay in cash at time of sale.

Lastly, the third practice. Collections. Some customers just don't like to pay; they either can't pay or like to push boundaries. Collecting from customers can be extremely time consuming and costly (not just in expense but in the possibility of losing a customer). But, know this, when customers don't pay - they are not customers your business wants or can afford to have. In essence, they are stealing from you.

A strong collection policy (outlined when an agreement is made with your customers) can go a long way to improving your cash flow and your business's ability to meet obligations. If your business can't do this in-house you can either purchase a package of software that will help with this process or outsource to the many companies that are very good at it. Most collection agencies only get paid when they collect for your business. Think of it this way: It is much better to get 50% of what you are owed than get 100% of nothing.

No matter which way you go, always start in house with a few phone calls or written reminders before outsourcing. The goal is first to collect and keep the customer. If that becomes impossible, then the goal is to simply collect what you are owed.

While growing sales should be one of the core focuses of your business - it should never come at the expense of the business. What a hard realization to know that your business model worked but could not be sustained simply because of a lack of cash management.

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