More sales should be good news. But they do not always mean your business is doing better.
You might finish the year with revenue up by 40%, yet have less money in the bank, an overstretched team and customers who need more work than you expected.
The business has grown. Whether it is stronger is another question.
In my work with growing businesses, this is one of the most common surprises I see: a record year for sales, and an owner who feels more stretched and less in control than ever.
Before looking at the numbers, ask yourself:
If sales stopped growing tomorrow, would the business be in a better position than it was a year ago?
You do not need a complicated spreadsheet to start answering that. These six checks will help you see what your growth is really delivering.
1. Are you keeping enough of what you earn?
Winning more work is useful only if you keep enough money after paying for it.
Perhaps you have lowered prices to bring in customers. Perhaps wages, materials or delivery costs have risen. Or perhaps the jobs you are winning take longer than you allowed for.
Look at your main products or services separately. One profitable part of the business can hide another that is busy but barely paying its way.
Also check how much of each sale goes straight to goods or services you buy from someone else. For example, selling equipment alongside your services may increase your sales figures without leaving you much extra money. There is nothing wrong with that, as long as you understand what each part of the business contributes.
Ask yourself:
- Which work leaves us with the most money after the costs?
- Which work takes more time than it is worth?
- Are we charging enough for what we deliver?
A full order book feels reassuring. It matters just as much to know whether the work is worth doing.
What to look at: gross margin by product or service, and how it has moved over the past year.
2. Is the money coming in when you need it?
A sale does not pay the wages until the customer pays you.
As your business grows, you may need to cover more costs before the money arrives. That can leave you short, even when the business looks like it's doing well. I regularly meet owners with record sales and an overdraft at the same time.
Check whether:
- Customers are taking longer to pay.
- Finished work is waiting to be invoiced.
- You are buying stock faster than you are selling it.
- You are putting off supplier payments to get through the month.
If sales and profit are rising but your bank balance is falling, find out why. There may be a sensible explanation, such as buying equipment or repaying a loan. What matters is knowing where the money has gone.
Can you afford the extra work while you wait to be paid?
What to look at: debtor days, unbilled work and your cash position against profit.
3. How much does it cost to win a customer?
New customers rarely come without a cost.
There may be advertising, sales calls, proposals, introductory discounts and time spent getting them set up. Some of those costs are easy to spot. Others disappear into the working week.
Think about how much you spend winning a customer and how long it takes to earn that money back.
If a customer stays for years and buys regularly, the initial effort may be worthwhile. If they leave after one small purchase, it may be harder to justify.
Are you winning customers who make the effort worthwhile?
What to look at: customer acquisition cost and how many months it takes to earn it back.
4. How much of your sales can you rely on?
A strong month is encouraging. Knowing customers are likely to return makes planning easier.
Look at where your sales come from:
- Do customers buy regularly, or only once?
- Does one customer account for a large share of your work?
- Are people buying because they value what you offer, or because of a discount?
If your biggest customer left, how difficult would the next few months be?
What to look at: recurring revenue, customer retention, and how much of your income comes from your largest customers.
5. Can your team keep up?
Sometimes a business grows because everyone works harder.
That can get you through a busy spell. It becomes a problem when long evenings and weekend work become the norm.
Look for signs that the team is struggling:
- Deadlines are slipping.
- Mistakes and complaints are increasing.
- People have no time to train new colleagues.
- You are constantly stepping in to keep things moving.
Be honest about your own workload, too. If you are responsible for bringing in the work, delivering it and solving every problem, there is a limit to how much more the business can take on. In my experience, the owner is very often the bottleneck, and that is nothing to be embarrassed about. It is simply the next thing to plan for.
What would need to change before you could handle more work comfortably?
What to look at: utilisation, revenue per employee, and the hours you personally spend delivering work.
6. Are you winning the right work?
Not every new customer is a good fit.
Some pay promptly, value your advice and come back. Others need constant chasing, ask for extras and question every invoice.
Compare customers you have won recently with those who have been with you for longer.
Are the newer ones as good for the business? Do they stay? Do they pay on time? Does serving them take more effort than you expected?
If you work on projects, compare recent jobs with similar ones from previous years.
Are you getting better at choosing work, or simply saying yes more often?
What to look at: profitability by customer or project, compared with older work of a similar type.
Warning signs to take seriously
One difficult month does not tell the whole story. Repeated patterns are more useful.
Take a closer look if:
- Sales are rising, but you are keeping less from each job.
- You are busier, but regularly short of money.
- Discounts are becoming the usual way to win work.
- Unpaid invoices or unsold stock keep building up.
- One customer accounts for a large share of your income.
- The business needs you involved in every decision.
- New customers take more effort and leave sooner.
Each can have a reasonable explanation. If several sound familiar, it is worth making time to understand what is happening.
What this means in your sector
The pressure points vary depending on what you do.
- Managed IT and MSPs: a fixed monthly fee may no longer cover the support a customer actually needs.
- Built environment: a job that looked worthwhile at the start may leave very little once delays, variations and retentions are included.
- SaaS: new sign-ups may look promising while existing customers quietly leave.
- E-commerce: higher sales may be swallowed up by advertising, delivery costs and returns.
The question is the same in each case: what extra work does it leave you with?
Be ready to explain your growth
If you are speaking to an investor, lender or potential buyer, be ready to go beyond the sales figures.
Explain which work earns money, whether customers stay, when you get paid and how the team will manage further growth.
You do not need to pretend everything is perfect. Explaining a problem and what you are doing about it shows you understand your business.
Start with one question
Choose the question in this article that you find hardest to answer.
Then set aside some time to look at your own figures. You might start with what you earn from each type of work, or how long customers take to pay.
That will give you a useful starting point for deciding what to change.
At Upscale Consultants, we help business owners understand what is driving their growth and where it may be putting the business under pressure. Not sure where to start? Take our four-minute Finance Scorecard, or book a strategy call to talk it through.
