Sales Growth is the Starting Point
I want to start the Business Acumen series with a basic discussion point: Sales Growth. This has become the top subject in many offices and board rooms due to the recessional impact by the economy. Every executive is focused upon increasing revenues. It has become the number one thing keeping them awake at night. While I will discuss this point, I want to share the balanced approach to looking at Sales Growth – since their are companies that are still growing even in this economy.
Sales Growth is one of the first things you should be looking at to understand the culture within the company. There are three variables for you to consider when reviewing growth. First, you can have growth; Second, you can have a declining sales trend; and Third, you can have no growth or no change in sales volume. The key is watch the trends. One year is never enough to assess the progress of a companies sales. Several years of sales (Five years is best, three is a minimum and for large public companies – 10 years) One of the best sources for public company data can be found in Yahoo Finance.
Trend showing Growth over a three to five year period. There are several questions to ask regarding a growth company.
- Is the growth also profitable?
- Is the growth coming from existing products or product lines – organic sources?
- Is the growth coming from acquisition or mergers with other companies?
- Is the growth percentage above the industry average? Above the GDP increase percentage?
These questions are designed to help you understand the quality of the sales growth. Examples of poor sales growth is sales growth while losing money; sales growth only coming from expansion into new territories or international sources; mergers with unrelated business segments; sales growth that is below the industry growth average; and a lack of organic sales growth – existing product lines, stores, territories, etc. Good growth would be the opposite of the bad growth examples.
A Sales Trend that is declining can be a red flag. Lending groups get nervous with declining sales, public companies lose stock value with declining sales. Most importantly, sales people have learned that customers tend to buy less during declining sales. These same customers have a tendency to push for lower prices and more favorable terms for themselves! The key for sale people is to find a way to increase their sales or lower their costs significantly for higher profitability opportunities in a low sales environment.
Finally, the no growth or no change company. This type of company is the hardest to figure out. Is the lack of growth a strategic decision? Are they maximizing cash flow for income purposes – the owners – salaries or dividends? Or, is the company using a no-growth policy for cash generation to fund R & D for new products or services? This takes major research on your part to discover the reasons behind the trends.
The last point is about the culture and people in the growth companies. The culture lends itself to even greater gains in the future. People in these companies display high energy levels and usually enjoy what they are doing. Morale is higher, standards are higher and thus – performance is higher. What a combination for success. Opportunities for personal growth and promotions are higher, also. The others do not usually support this intangible factor or variable. No Growth and Declining Growth companies are looking to cut out things – including the people that make things happen. Low energy and turnover mark these organizations.
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