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14 FEDA News & Views Exhibit 1 The Impact of 15.0% Sales Growth Combined with a Profi t Improvement Plan For a Typical FEDA Member Current 15.0% Percent Income Statement Results Growth Change Net Sales $17,500,000 $20,125,000 15.0 Cost of Goods Sold 13,500,000 15,525,000 15.0 Gross Margin 4,000,000 4,600,000 15.0 Expenses Payroll and Fringe Benefi ts 2,500,000 2,825,000 13.0 All Other Expenses 1,150,000 1,265,000 10.0 Total Expenses 3,650,000 4,090,000 12.1 Profi t Before Taxes 350,000 510,000 45.7 Income Taxes (30.0% of PBT) 105,000 153,000 45.7 Profi t After Taxes $245,000 $357,000 45.7 Partial Balance Sheet Cash $450,000 $192,000 -57.3 Accounts Receivable 2,000,000 2,300,000 15.0 Inventory 2,100,000 2,415,000 15.0 All Other Assets 1,200,000 1,200,000 0.0 Total Assets $5,750,000 $6,107,000 6.2 Accounts Payable $1,500,000 $1,725,000 15.0 F ew distributors ever say no to addi- tional sales. Not that sales solves all problems, but sales growth is a lot more fun than sales stagnation. As it turns out, rapid growth creates as many problems as it solves. If a fi rm grows too fast it will face cash fl ow challenges. If it grows way too fast, it will probably die from a lack of cash. Those are ominous alternatives. The idea that sales growth can be too fast is somewhat counterin- tuitive. Because of that, it is necessary to understand exactly how sales growth impacts a fi rm's fi nancial performance. Money Matters Too Much of a Good Thing By Dr. Albert D. Bates President, Profi t Planning Group bigal@profi tplanninggroup.com This report will tackle two perspectives: "The Good and Bad of Sales Growth," a discussion of how sales growth cre- ates fi nancial opportunities as well as fi nancial challenges, and "The Growth Potential Index," an examination of a method to identify how fast the fi rm can afford to grow. The Good and Bad of Sales Growth Exhibit 1 outlines the impact of a 15 percent sales increase for a typical FEDA member based upon the latest PROFIT Report. In the "Current" column, the fi rm has $17,500,000 in sales and earns a profi t of $350,000. To generate this profi t, the fi rm must invest $5,750,000 in total assets, much of it in accounts receivable and inventory. This is some- what offset by $1,500,000 of supplier fi nancing. The second column details what 15 percent sales growth does for the fi rm. Some of what happens is extremely posi- tive. Other results are negative and need to be addressed. continued on page 28