How Too Many Sales Can Be Bad For You

overtrading

How too many sales can be bad for you

You are in the Olympic 100m final, you fly out of the blocks and are heading down the track toward a world record time and a long sought after gold medal. A few metres from the line your legs no longer move and the field runs past you leaving you staggering behind and out the race.

Take that and swap it for running a company that has sales coming in, a growing debtor book, loads of orders and that seemingly runaway success. Then, suddenly your cash runs out and;

  • The new sales stop
  • Existing orders are not met
  • Staff leave
  • The rent cannot be paid

Next stop panic stations.

This is called over-trading. Where the business grows but lacks the cash to cope with the increased outgoings, cash to finance orders and cash to cover overheads.

Manage your growth

This doesn’t mean turning down sales, it means understanding your customers and planning further ahead than you have before. The further you can plan ahead the easier it is to source the lending needed and have the cash in place for when you need it.

A few good tips to managing growth

There are things you can do to better manage your growth;

  • Talk to your customers. Ask your customers what their plans are for the upcoming year, are they planning on any major projects or orders that may put pressure on you. Do they expect to be doing more or less business with you. The worse case scenario is an unexpected large order that you cannot finance, get in control and speak with your customers
  • Know your cash flow. Good, regular, management information is vital. Get a good bookkeeping system in place, get some forecasts based around what you know and keep things updated. Your financial accounts shouldn’t be a last minute panic 8 months 30 days after your year end, they should be regular and reviewed. Again, stay in control
  • Debtor management. Know who owes you money, when it is due in and ensure you chase for payment. There is nothing wrong with asking to be paid. Debtor management doesn’t stop with chasing for payment, keep an eye on how your debtors are performing by using a credit monitoring system. Not all customers should be paying on the same terms

The bottom line remains that it is all about cash. You need cash to finance your growth, just don’t leave it until it is too late. For any questions please get in touch.

By Dave Farmer

Dave Farmer is founder of the award winning Lime Consultancy, a business finance advisory and commercial finance brokerage based in Sussex.

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