Your business is doing well and you are rolling along. You have a good backlog of work. The customers are getting what they want. You are busy making sure your company is executing. The profits are fine. Everything is great. At least for now. In reality your business may be peaking.
This age old problem in small businesses almost inevitably hits when the business goes through a growth spurt or an extended period of steady sales.
There is a simple rule business owners/managers/entrepreneurs should following every day. For every dollar of revenue my company generates I need to replace that with X dollars of new sales or X+ if I am trying to grow the business.
In essence every day you are not back filling revenue with new sales at least on a 1 to 1 basis your company is shrinking. The shrinking may take a while if you have a large backlog. It may be slow if you are getting a .9 to 1 or nearly replacing the revenues. The inevitable truth is universal and unconditional. Lack of good sales will eventually negatively affect your company’s revenues.
What does this really have to do with managing my business? It is pretty simple. If you own or manage a business you have to be actively selling (unless customers are beating down your door). You cannot get wrapped up in the execution to a point where you are neglecting the sales.
As a business owner or manager one of your first daily objectives should be ensuring that you are landing sales to replace the revenue you just invoiced. You new orders should be the measure. If you are booking sales at the same or greater pace than your revenues you are not going to run out of work. That is the first goal in a small business. Keep the work flowing. This is a such a simple metric it should be one of the things you review every day. If you have others responsible for sales they should be focusing on this and using it as a measure of their success.
There are many benefits to consistent workflow. Once you have a consistent workflow there are many different things you can do to improve profitability, expand offerings, and target new markets, etc. When a business is hitting peaks and valleys constantly you are in a constant state of flux. If you are really busy you can’t take a moment to think. Your costs are generally higher because of overtime and expediting costs required to keep revenues on schedule. When the peak has passed you are trying to figure out how to cut costs. You are also probably burning extra cash because you don’t want to lay off employees and mothball resources just to bring them back on line when you are increasing revenues again. If your business is capital intensive it is even worse. You have periods where capital equipment or space is underutilized or not used at all.The vertical line in green above the average shows the extra capacity/space/resources you need when the business operating above average. The red line below the average sales shows how those resources go underutilized when sales drop below the average.
You get to pay for this twice. You had to get more than you needed. Then you get to maintain more than you need. You are rarely able to generate the consistent long term profits operating with sales fluctuating like this.
The bottom line is you should always be selling. If you can even keep the sales on an average or slightly increasing pace you can maximize profits. If you have to add capacity you need to generate more sales and move the average up. Time devoted to understanding and generating sales each day will save major headaches in the future.