This is the final part of a series that looks at the four core business systems you need to have in place to operate at an optimal level and maximize your internal cash flow from operations. The first part of the series discusses driving internal cash flow to improve profitability, the second covers measuring your operations with key financial information, and the third looks at making good decisions with solid business information.
You’re sitting in your office reviewing a proposal to expand your business. For $1 million, you can build a facility to house a new machining tool and hire people to manufacture one part needed for the equipment you sell. Do you write the check?
This is a real situation one business owner encountered. He had an aggressive plan to grow 300 percent in five years, but he struggled with the fact that the new part didn’t really add value to the product. That’s when he got creative.
He picked up the phone and called the engineering team. Was there another way? Ultimately, there was, and he engineered his way into a solution that avoided the additions, improved the product and reduced the cost to manufacture. By working with his employees, the owner came up with an efficient and innovative solution.
To achieve exponential growth, you need to have exponential creativity. Don’t always assume that you need to add assets. That’s sloppy growth. Sloppy growth isn’t profitable.
Grow Revenue Through Marketing and Sales
Many salespeople will sell anything to anyone at any price. But to have sustain-able growth from healthy sales, you need to sell the right products to the right people at the right price…over time.
How do you grow healthy sales? You need both an organized sales program and an expansive marketing strategy.
Take stock of your competitive advantages and the degree to which these differentiators warrant increased sales. Do unique features warrant increased sales levels? Can you enhance offerings to improve your competitive position? What new offerings are possible within the current market segment and skill set of the business? Ultimately, your business is limited to the breadth and accuracy of your vision.
With a strategic marketing plan and a competitive offering, selling must be planned and managed. Structuring the sales team is one of a business’s most important undertakings. If you do it poorly, well-intended efforts will be wasted. But if you do it well, your sales team will work in harmony with other departments – which is vital to healthy growth.
Sales skills are often confused with people management skills. Your best salesperson might not be the best candidate to be your sales manager. Sales management requires planning, organization and coordination skills that are not gained through selling alone. The most successful, growth-oriented sales teams are consistently managed using clear definitions and measurements with expectations and rewards in line with company goals.
Forecast Future Sales
Your sales forecast must cover all aspects of the marketing and sales process. Long-term forecasting considers global market size and the strategic position of the business. Without a long-term perspective on the marketplace and the position of your business within it, shorter term planning cannot be effective.
Annual sales forecasting must be consistent with long-term planning, and your sales team needs to be actively involved. Consider customer needs when determining how much you will sell at what price to whom. This exercise sets the tone for the year…so predicting annual sales must be thorough and accurate. Setting the bar too high or too low is counterproductive.
You must also organize and manage day-to-day sales efforts. To manage the pipeline, you need a clear assessment of active leads. Establish criteria for various closing scenarios. Determine what opportunities you have a 95 percent chance of closing in 30, 60 and 90 days. Then repeat for the opportunities you have a 70 and 50 percent chance of winning using well-defined criteria for each level of certainty. Use this information to forecast sales and predict staffing needs.
Deciding When to Expand
Assuming your crystal ball is accurate, when do increased sales necessitate an investment in buildings, equipment and staff? Always follow these guidelines:
- Minimize the increase of fixed costs. Wherever possible, cost increases should be variable.
- Eliminate waste, increase productivity. You should be out of options to improve processes and facilities before considering fixed cost increases.
- Create a reward system. To grow profitably, empower your team to help limit increases in fixed facilities and staffing costs.
Plan for the worst case. Create a viable operations plan that accommodates your worst-case sales plan. Then determine how anticipated and best-case scenarios can also be accommodated this year and in the long term, absent undue increases in facilities and fixed operating costs.
Growing fixed costs is easier than shrinking them. Healthy growth, when effectively planned and well-organized and executed, will bring sustained profitability to your company. If revenue forecasts indicate a need for expansion, investigate all possible alternatives for capacity increases through improved operations first. These are your least expensive means of expansion – and the most rewarding to you and your staff.
You may not be able to engineer yourself to a better solution, but if you can be innovative, maximize efficiency and eliminate waste, then you have many more options for healthy growth and future success.
This article was originally published in The Rea Report, a Rea & Associates print publication, Spring 2013.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.