More sales isn't always the right answer
September 1, 2009
Is increasing sales good? I’ll bet most of you say “yes.”
But it really depends. Here’s why.
I once worked with an HVAC contractor who continually increased sales from year to year. He was happy with the growth of his business and always had cash in the bank. He reached about $2 million in sales. Growth stopped. All of a sudden he could no longer pay his bills and was struggling.
That’s where I came in. The first question he asked me when I walked in the door was, “How much inventory do you think I have?”
I answered with an educated guess.
“That’s what I’m putting on my tax return,” he said.
That was my first clue he didn’t know what was really going on with his business. My investigation showed that the company’s work was superior. Customers raved about their service and installation. However, he didn’t understand the business side so that he could charge enough to stay open and continue doing excellent work.
An analysis of his financial statements showed that he was actually losing a nickel for every dollar that came in the door. How can you do that? Easily. Don’t track your inventory. Don’t do job costing or track your jobs to ensure that you bill everything. Don’t watch the productivity of your crews and technicians. Rely on your accountant to do your tax returns and give him or her insufficient and inaccurate data.