Grow your sales, blow up your business
"Make sure you understand what you will need to fund the increase in project costs"
August 19, 2019 by canadiancontractor
By Steve Ryan
“Things will improve if we can grow our sales”
It seems like a pretty solid concept that increased sales will bring greater profitability, which makes just about everything more manageable. So, when the pressure is on our default solution is to try and grow sales.
Once again, as with other conventional wisdom, the notion isn’t really wrong. It just isn’t right all the time. In fact, some of your most serious challenges can be made dramatically worse by taking on more work.
The point here is not to suggest that increased sales are bad. After all, how does a company grow and prosper if it doesn’t grow sales? If your ambition is to grow your business, then absolutely you should plan to grow sales. But as a solution to problems or pressure you are facing right now, be careful.
From a financial standpoint, you will see a corresponding increase in the cash you need to do additional work. That will happen before you see any increase in payments received from your customers. If you are strapped for cash, then taking on more work will aggravate your problem before you get any relief.
From a profitability standpoint, it seems logical that selling more should generate more profit. But let’s be realistic. Getting aggressive about winning more work probably goes along with being more aggressive with pricing. Even a small slip in your margin has a big impact on your bottom line and can leave you doing more work for less money. Growing sales profitably demands enough patience that you don’t default to price reduction as the way to achieve it.
From the standpoint of improving operations, how else do you build a more complete, more efficient operation unless you have the sales to support it? That’s a fair question and the fact is that they do go hand in hand. It’s pretty common for a business owner to recognize that they are trying to do too much with too little. The organization they want requires more management help, more administrative help, more tools/equipment and/or a bigger facility. Recognizing that this brings greater costs, their priority is to take on the additional work to pay for it. Add that work before you add the resources to handle it and an already stressed organization reaches a tipping point. Project timelines slip, invoicing gets delayed and there is even less money coming in. This applies to most business anywhere, but if you want an organization that generates greater sales, you need to invest in the organization first. In other words, take the risk that you will achieve your goals and put the people, tools and facility in place so that they are available in time to take on the additional work.
If your ambition is to run a larger, more profitable, more professional business then growing your sales is absolutely a part of the mix. But as the default solution to problems of today, be careful. Either way proceed with a plan.
- Make sure you understand what you will need to fund the increase in project costs.
- Understand the pricing you are going to work for and be sure it will add to profitability.
- Be prepared to establish and pay for the organization you will need so they are in place and ready to carry out the larger workload efficiently.
- MMI Professional Services is committed to the success of contractors by helping them develop the business and management skills they need . For information on ways to run a better building business contact the writer at email@example.com