Declining revenue – some empirical evidence.

Posted: June 10, 2013 in Business Financial Statements, Family Businesses, Up-and-running Business

It has been my experience that continued revenue declines without remedial action will result in reduced cash. Duh!! As rhetorical as this statement appears, it doesn’t seem to resonate with many small businesses.

It has been my experience that not being proactive when revenue is flat or declining is one of the two mortal sins of a small business owner  (The other is being impulsive and making capital commitments at the first sign of a revenue increase). Lower revenue means lower trade receivables  60-90 days out. Lower receivables means less money to deposit in your bank account. Unfortunately, while revenue and cash flow may decline, overheads remain the same and eat up an ever increasing chunk of declining deposits.

One knee-jerk reaction to kick start lagging sales is to reduce prices. This is quite common in the retail sector. It can be a prudent strategy, given that retailers have a huge investment sitting on their balance sheet in inventory.

Revenue is a barometer. If revenue declines what is this telling you? If your business is cyclical or seasonal then maybe this can explain why the decline has occurred. Is this the reason or are there other reasons?

If you forecast that revenue will remain flat or will decline for more than a fiscal quarter, what will you do? Doing nothing is not the answer.




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