Increasing Sales or Profits…Which is the Right Goal for your Business? -How to manage Business Cas

In the best of all worlds, sales and net profits would be increasing all the time, but this is not the immediate goal for many businesses depending on their strategies, industry, business life cycle point, etc. There are so many permutations to this equation for a successful business that I will limit my focus to 3 most common types of businesses.

Our discussion will be on the following:

1)      The young startup tech business,

2)      The service business, &

3)      The traditional manufacturing / product design to wholesale model.

Fast Growing Tech Companies: Sales vs Profit.

In most cases, there is a technology time to market component that provides the edge for this kind of company. This company and its investors have to be focused on ramping sales quickly due to the fast paced nature of technology, and the advantage of being first to market. Companies like Uber, Snap Chat, Twitter and similar tech models have little use for profit as they are in the mode of growing sales which can be measured in gross sales dollars, and even more importantly, gross or total users of their platform(s) which is often amore valuable form of measurement in the tech industry. Smaller tech companies making apps for IOS or Android do not have the luxury of deep pockets like the big names we hear about in the news so critical sales volume (and user base) must be reached more quickly. Often, a combination of investors (equity) and debt financing are best to maintain cash flow. A start up software or app company needs to plan for cash flow before taking on a new line so not to place the overall company in distress in the near term.  Fast growing companies do not often have traditional banks looking to provide loans due to very high credit requirements. Often, alternative financing is not thought of as a viable solution due to lack of familiarity or knowledge in the executive ranks. Receivable financing or factoring invoices is a great solution to immediate working capital needs. Factoring invoices is the process of converting your invoices into immediate cash. For example, a new product may require new staff which places an immediate cash crunch on company. There also may be needs for new inventory or bridge financing between new orders.  Factoring is a great way for a small tech start up or even a more mature company with a new business division to manage its new working capital needs.

Service Businesses: Profit vs Sales. 

Service businesses are typically labor intensive and require a lot of cash flow to maintain the business because payrolls are every two weeks. Focusing on sales for the typical service business is a death nail.  Service businesses must be focused on profit for every invoice.  For example, a Staffing Company does not have products or intangible assets working like a tech or manufacturing company.  They must make a profit on each invoice or they will soon find their working capital disappearing. Any business heavy in labor, whether a staffing company or not, has the same issues for cash flow. Factoring invoices and receivable financing are very common for businesses in this field as traditional banks shy away from companies without inventory, machines, land, or other hard collateral. A factoring company can convert invoices into cash in a matter of days so employing tools such as these can a wise way to ensure cash flow even if you think your basis are covered.

Traditional manufacturing / Product Design to Wholesale Model: Profit vs Sales.