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36 FEDA News & Views with sales. Inventory will increase with sales over time. Accounts receivable will automatically increase with sales on a real-time basis. Balancing out these investment requirements is the fact that as the fi rm grows it will purchase more merchandise from suppliers and have more accounts payable, which offsets the need for additional cash. For the typical FEDA member, the resulting GPI is 9.4 percent. The impli- cations of this ratio are highly coun- terintuitive. If a fi rm grows faster than its GPI, it will generate more profi t on the higher sales. However, as was seen in the exhibit, the amount of cash on hand will actually decline. Conversely, growing slower than the GPI reverses the outcome—profi t is not as high, but cash rises. In no way does the GPI indicate how fast a fi rm must grow. Firms should almost always grow fast enough to main- tain their position in the marketplace and possibly increase their market share. Money Matters continued What the ratio indicates is that when a fi rm's sales growth projection is larger than the GPI, it needs to have a specifi c cash-maintenance plan in place. That plan should have three components: Increasing Profi t The greater the profi t, the higher the GPI for the fi rm. Enhancing profi t should always be the fi rst priority of the fi rm. This is true regardless of the opportunity for sales growth. Controlling Investment Levels If sales can be increased without requiring a commensurate increase in inventory and accounts receivable, the GPI can also be increased. However, care must be taken as excessive controls on either inventory or accounts receivable almost always slow actual sales growth. Securing Financing If the fi rm must grow beyond its capacity, it is absolutely essential to have adequate fi nancing arranged before the funds are needed, not after. Moving Forward Sales growth is essential for long- term success in distribution. Every fi rm must continue to grow. However, if that growth is unplanned, a distributor may well end up worse off than it would be with no growth. Every business must know exactly how fast it can grow given its existing cash position. It should then work to improve its ability to grow, large- ly by enhancing its profi t after taxes. About the Author Dr. Albert D. Bates is Director of Research at the Profi t Planning Group. His recent book, Breaking Down the Profi t Barriers in Distribution, is the basis for this report and is available in trade-paper format from Amazon and Barnes & Noble. ©2016 Profi t Planning Group and the Distribution Performance Project. FEDA has unlimited duplication rights for this manu- script. Further, members may duplicate this report for their internal use in any way desired. Duplication by any other organization in any manner is strictly prohibited.