Sounds like the punch line to a bad joke, doesn’t it? But that’s what happened to Wise Acre Frozen Treats, an organic popsicle company based out of Maine. Its story starts out pretty inspiring. A creative mind came up with an idea that hadn’t been done before, and after a couple years the business began to really take off. Wise Acre quickly went from distributing its product in a handful of stores to hundreds. At its peak, it had landed a contract that would take its popsicles across the country. The potential profits must have been staggering to a young entrepreneur. But ironically, the business collapsed before its third year. There simply was not enough cash to sustain operations long enough to fulfill all those orders.
This kind of thing doesn’t only happen to start-ups. A 2010 survey reported that 54% of companies that filed for bankruptcy were going through a period of record sales when they closed their doors. The underlying problem is that increased sales does not necessarily equate to more cash. The solution: focus on the balance sheet in order to keep the business healthy.
Consider your company’s assets. What percentage are receivables, versus inventory, or fixed assets? Then do the same for your liabilities. Once you’ve got an idea how the pie is divided, then take it to the next level and look at each asset or liability category in relation to sales. For example, you may have a 20% increase in sales, but how much of that income is tied up in receivables?
Comparing your balance sheet to the income statement is where you can really drive your company to prosperity, because now you can monitor its ability to maintain healthy growth. And with every dollar of sales, you’ll know how much additional funding you’ll need to secure in order to sustain growth. Get in the habit of managing assets and liabilities as well as sales and expenses, and you will have taken great strides for your company’s future.
Please feel free to discuss any of the above with your Wealth Advocate. We are ready and willing to help you navigate your way to prosperity.
<http://small-business-resources-cafe.blogspot.com/2011/05/my-company-grew-too-fast-and-went-out.html> “My Company Grew Too Fast – and Went Out of Business.” by Jim Picariello, CEO Wise Acre Frozen Treats, as told to Kathryn Hawkins. May 5, 2011.
<http://village.vistage.com/docs/8902>. “How to Avoid Running Out of Cash.” May 20, 2011.