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Salt Lake City Bookkeeping Blog

Financial Troubles: Cut Expenses Or Increase Sales?

Posted by Matt Roberge on Dec 3, 2012 6:51:00 AM

When a business starts having financial troubles it seems that everyone’s first instinct is to cut expenses. I tend to disagree with this mindset. The reason I disagree is I would be more concerned with increasing revenues than I would be with cutting expenses. I feel that a business should always be operating under expenses that are paid attention to and controlled. If a business is not operating under a budget then it is a business that is already out of control. Those businesses that put a budget in place and stick to it have no choice when faced with financial issues; they must increase sales or go out of business.

A budget is worthless unless it is followed

I feel like many businesses create a budget just because they feel like they should, because it is something that smart businesses do. However, once the budget is created it seems like very few businesses ever reference it again. Not only should a budget be followed, but people should be held accountable when the business sways from the budget. Financial analysis of your actual figures vs. your budget may be even more crucial than actually creating a budget in the first place.

Cash flow is very important

Cash is king and always will be. Too many businesses lose sight of their cash flow when things
are good and money is rolling in without any issues. It’s when things get tight that businesses tend to focus more on cash flow and realize there may be a problem. I often see business managers or owners show me their profit and loss statement with pride. However, the next question out of their mouth reveals the truth about their business. “If we are showing such a high profit why is my bank balance so low? Where is all my money?” A quick balance sheet will often reveal the answer; their money is in accounts receivable. On top of that many owners may be looking at an overstated profit and loss due to inaccurate bookkeeping. Establishing clear billing policies and sticking to them will decrease your accounts receivable and increase your cash flow. Accounts receivable and cash flow is easy to ignore when money is in surplus. However, you should always pay attention to cash flow as it is the lifeblood of your business.

Cutting expenses may put you out of business

I hate to give you the old cliché here, but as the saying goes “you need to spend money to make money.” While I really hate the saying it has some validity. When times get tough people immediately think the answer it to cut expenses. Cut payroll, advertising and anything else that can be slashed. The problem is that mentality may lead to a complete meltdown and collapse of your business. Why doesn’t anyone ever answer financial hardship with “looks like we will need to get out and sell more?” It is that mentality that I have respect and admiration for.

I’m not a salesman so how do I increase sales?

Where do you start though? You are not a salesman all you know is how to produce widget A and when people need them they buy them. If you are a small business owner you are in sales. If you have the mentality that you are not in sales then you may not find yourself in business for very long; especially through tough times. The major turning point in any small business owner’s career is when they realize they are in sales. This mentality will change you and your business forever. When you come to this realization you will probably be overwhelmed with two feelings; excitement and fear.
If you are not a salesman one place you can start is by looking into some sales coaching. You could also give this inbound marketing thing a try. Do some networking and see how other small business owners are driving new business.
Now let me explain why I wrote this article. We deal with a lot of small businesses and a lot of different owner personalities. The past several years have been tough on a lot of people and a lot of small businesses. I’ve seen a lot of owners go into freakout mode. We look at their profit and loss and they all ask the same question, “where can I cut expenses.” Just once I would love for someone to say, “Well clearly my expenses are under control because I would have it no other way. Looks like we have no other choice but to increase sales or go out of business.” I would shake their hand in a heartbeat and tell them that everything is going to be alright.

QuickBooks tips and bookkeeping advice

Topics: Cash Flow Management, Bookkeeping Business, Financial Forecasting, Business Budgeting, Sales Advice, Business Financial Troubles, Sales, Business Sales