Sustainable Sales Growth

Q: How can your business make more money?

A: Increase sales.

Simple, right?

Not so fast, Speedy. Growing too much, too fast can put a strain on your cash flow. Strain it excessively, and you will have grown yourself out of a job.

Here is a simple formula to help you determine how much growth is safe to pursue given your current operating cash flow:

Net income / (net worth – net income)

I know, I’m making you do the math. But even the most math-shy among you should be able to crank this one out.

For example, let’s say your company had a net income of $275,000 last year. And say you ended the year with a net worth of $2,500,000. Your sustainable growth rate would be 275,000 / (2,500,000 – 275,000) = 12%.

If you grow more than 12%, you will need to free up some cash. And unless you have a rich uncle, this could mean increasing debt, cutting operating costs, or raising prices. Any cash-freeing strategy requires careful consideration and carries the risk of sabotaging your progress.

It’s worth noting that this formula assumes that your organization’s current performance is desirable.

If this is not the case, that does not mean you’re unworthy of considering sustainable sales growth. It just means that the formula is of limited use to you at this moment.

We hope that soon you’ll soon be saying “Gahhh! I’m growing too quickly! I’m far too awesome! Slow down!” (P.S. Want to get there faster? We have a few ideas for you.)

Don’t stop here. Be sure to check out some of our other accounting resources.

We have found that the cost savings and efficiencies of working with a company like Owl is more beneficial than hiring our own in-house employee.

With Owl’s in-depth knowledge of our business and an awesome attitude, our business continues to run smoothly.

Owl staff understands not only the financial side of business but is able to coach us on other aspects of business decisions and to help us define alternatives.

The attention to detail, coupled with an understanding of and willingness to dig in to our unique systems and processes has kept us running smoothly.

Learn More About How OWL Can Help You

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