There are two big sales problems that a business can have:
- Not enough sales
- Too many sales
In this case, I’m not talking about fulfillment, client satisfaction, shipping, production, or any other non-financial concern. They are important issues though, just not the topic today.
Today I’m talking about your business finances. When it comes to business, cash is king. Without cash, your business will shut down. Sales are a good source of cash, but not the only source. You could also sell stock, assets or take out loans. Those are all ways to create cash for your business that might have nothing to do with your sales numbers.
Not enough sales will ultimately mean the end of your business unless you can find a way to dial back costs fast.
Too many sales can also create a problem for a business. As sales volume increases, you need to produce more inventory, hire more staff, buy more equipment and/or increase your overhead costs. In fact, unless all you do is receive a straight commission and pay based on straight commission, you’ve almost always inevitably got some cash-intensive costs when you make more sales.
When it comes to taxes, the problem is that most of those costs go to increase your assets, not increase your deductions. So you may end up spending $100,000 to increase your inventory and be completely broke, yet owe taxes. That’s because that $100,000 you spent on inventory is not deductible right now. You have to sell the inventory and then the cost becomes a cost of goods sold.
Not enough sales = not enough cash
Too many sales = not enough cash
Both situations can lead to cash flow problems. The answer is to have a good forecast of your cash flow needs. Be prepared for downturns and ramp-ups.
That’s just one of the topics we’re covering in Saturday, July 30th FREE teleseminar “Will Your Business Survive?” Sign up HERE
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