CASE STUDY - 3 MIN READ
When sales are strong, but cashflow isn't
How reporting structures can conceal operational reality
Context
This was an established, well-respected SME with a capable, vibrant team of staff, loyal customers and growing demand. From the outside, the business appeared to be performing well.
What leaders were experiencing
Despite these positive indicators, the numbers didn’t reflect the apparent success.
Day-to-day cashflow was uncertain.
On paper, the business looked good; there were no significant aged debts, invoices were being paid, and increasing sales should have resulted in improving cash reserves.
Instead, cashflow remained tight and unpredictable.
What was actually causing it
Initial assumptions pointed to the usual suspects: low margins, rising costs, or slower customer payments. But none of these proved to be the issue.
Margins were modest, but in line with industry norms. Costs increased proportionally with sales volume. Customer payments remained consistent.
A short diagnostic revealed two underlying causes.
First, products were assembled from components purchased from multiple suppliers, with each adding delivery charges. These delivery charges were not captured in the purchase order system. The system showed only the net cost of goods, excluding delivery.
The sales team used those recorded costs and added a modest margin to set a sales price.
In reality, once cumulative delivery charges were included, many products were being sold at break-even, or at a loss.
Second, this issue was masked in financial reporting.
Product and service sales were grouped together in the nominal structure. Growing service revenues concealed the losses being made on product sales, preventing the issue from being visible in high-level reports.
What changed
Once identified, both issues were easily addressed.
Frequently used items, previously purchased ad-hoc (daily / weekly), were moved to scheduled monthly bulk purchases.
This reduced delivery charges, unlocked bulk-buying supplier discounts, and larger order improved credit terms. It also enabled the sales team to negotiate better pricing on future orders.
The purchase order system was updated so delivery costs were a mandatory, visible field.
The sales team received targeted training to ensure pricing decisions reflected full costs.
The financial reporting structure was also redesigned collaboratively between finance, sales, and senior management.
Product and service revenue were separated, creating a clearer link between operational activity and financial reporting. Monthly reconciliations aligned purchase orders, sales orders, and finance records.
Outcome
The impact was immediate.
Cash flow stabilised and grew through reduced costs, improved supplier terms, and accurate product pricing, with some additional ongoing benefits:
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The number of purchase invoices received each month reduced significantly (due to the bulk buying), saving the finance team hours of monthly processing.
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Bulk purchasing shortened order-to-delivery timelines, improving customer satisfaction.
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Reporting evolved from high-level owner only summaries, to shared, meaningful operational and financial insight across leadership.
The business moved from reacting to uncertainty to operating with clarity.
Reflection
The most significant outcome was financial, but for the owner, there was another valuable outcome - a vague sense that something wasn’t right was validated.
A problem that initially felt unclear and subsequently complex, was traced back to one easily missed operational detail, compounded by a reporting structure that prevented it from being seen.
Once addressed, the solution delivered cost savings, time savings, improved collaboration between sales and finance, faster customer delivery times, and more relevant and useful information for leadership decisions.