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You’re self-employed and things are tight financially speaking? You have sent a few invoices that have not yet been paid? Certain fixed costs are beginning to weigh heavily on your monthly budget? Your line of credit is exhausted and you’re running out of reserves?

What should you do? The natural reflex for many would be to increase sales. The logic seems sound; you have problems with your bottom line, you must increase your income. It is basic mathematics.

True. But many forget that there is a delay between action and reaction, especially when it comes to sales. In our example, the problem is "now", so immediate results are needed.  Selling ??more will have the opposite effect before yielding the desired results; an increase in sales increases your short term expenses. You need to advertise, contact customers or potential clients (your time is money), increase inventory, print documents, etc. In some cases, increasing sales could send the company into insolvency.

So what can be done when facing such a situation? Well, we must cut spending and collect past due accounts. Both initiatives have a direct impact on your immediate cash flow.  In addition, if you realize that your fixed costs are causing you problems, then it may be because they are too high for your income. Look at what you have, evaluate what is essential, and cut the rest. This exercise will be part of the solution to your immediate problem, but it will also bring greater profitability in the future.

In summary, if you have a short term liquidity problem, cut your expenses, do not sell more. You may not have time to see your sales grow before you have to press the panic button.

Have a great month

Stéphane Elmaleh-Riel, B.Ed., MBA
Marketing consultant