Have you ever noticed in your business that sales activity and cash seem to be mutually exclusive?
In other words, when you are hitting the streets and drumming up new work, your cash is at a low point. Then, when you hit some of that work and start production you start to get cash, but your sales activity is low.
As a business owner wearing several hats, it can oftentimes be difficult to navigate these times of feast or famine. More importantly, it is hard to understand why it is happening.
Let’s dig into the issues a bit deeper.
When I am selling new work, my cash gets low
This is happening because when we sell, the production process is slower than normal and not generating enough finished goods to feed the beast.
A continual sales effort is necessary to have a healthy, sustainable business. If you are not continually selling work, then this vicious sales/cash cycle will happen over and over.
When I have closed new deals and we start production my cash normalizes
This happens obviously because the shop floor is busy cranking out all the product you have recently sold, creating new receivables. This is a great time in business, although you know it’s not going to last if you don’t keep selling.
This is a very typical process for most small businesses. Without dedicated salespeople, designers, foreman, etc., the owner has to fill in the gaps.
Background
Although the term “Vicious Sales Cycle” is one we came up with in my component business, it is actually based off a trend that we noticed about 10 years ago. It was not a grand light bulb event, but more of a conversation with my lead guy.
One day in passing he said, "It seems like your mood is directly tied to the cash that the company has at the time. Happy when cash is up, a bear when it is down." Although he was kidding, it spurred me to think about what he was saying.
After that comment, we had several conversations and eventually just started referring to it as the Vicious Sales Cycle, and that we had to do something about it, for the business and for my mood too.
Defeating the cycle
So how do you normalize cash flow?
There are two key elements that go into defeating the Vicious Sales Cycle:
Keep a continuous sales effort
- To have continuous sales you need to have a sales plan that can reliably generate leads and convert to paying jobs. Inbound marketing is not only a way to generate great leads, but also a way to create raving fans in the process.
- Generate a stream of reviews from your customers after you complete a job. It has been said that 80 percent of our customers come from referrals, but those same people trust a review as much as a referral. In today’s world, reviews are the proof to your business pudding.
Maintain production levels
- Outsource your manufacturing by buying your box components. With new construction methods like Lockdowel, it has never been easier to buy your components in a flat-pack, ready to build kit.
- Outsourcing your cabinet box parts is the perfect solution to adding capacity without injecting any additional capital. Just think if you were to double or triple in size from where you are today. How much new equipment, space, overhead would you have to add to handle it? If you outsource your parts, then you are effectively fixing your costs and instantly adding to your capacity.
Keep a continuous sales effort and maintain production levels and soon your cash cycle will normalize. Your mood will definitely improve knowing your profits will stay in your account rather than go to funding the next Vicious Sales Cycle.
Have something to say? Share your thoughts with us in the comments below.