HOW TO GROW SALES 2: Effects on Cost of Goods Sold, Operating Expenses, Net Income, Working Capital

One of the most effective ways of stimulating sales is by injecting a credit program into your sales program (i.e., set up an accounts receivable). If / when your credit program / accounts receivable results in a growth in Revenues as expected, your Cost of Goods will also grow in step with your Revenues. Make sure that your Cost of Goods per unit stays the same (of course, the absolute / total amount will grow). With your Cost of Goods per unit kept at the same level (and with your accounts receivable not exceeding 25% of your revenues), there shouldn’t be any need to increase your Working Capital.

You should also make sure that your Operating Expenses do not increase as a result of the increase in Sales / Revenues. The most common result of an increase in Sales is the need for more work space for production. You should not immediately succumb to the temptation to increase work space. First, make sure that your work space & production process are well-organized & optimizing available space. (My Organized Biz of Jennifer Hoffmann can help.)  Also, you have to make sure that the growth in sales has stabilized and is not a flash in the pan.

If you are able to hold your Operating Expenses in check (or, at least, at a minimum increase), you can expect a significant increase in your Net Income (both as a percent of your Revenues and in an absolute amount).

graphics by Ren Garcia / image from Microsoft Clipart