Growth is the lifeblood of every business. It means more income, new customers, a greater market share and a good deal more visibility. However, it also has its downside. Business growth brings additional financial commitments, greater debts, and – most worryingly – cash flow problems as orders may need to be fulfilled before they’re paid for. It’s therefore crucial that growth is sustainable and carefully controlled.
What happens when your business grows too quickly?
When you take on new customers, you need to expand your team and order new stock to deal with them. If you’re in the business-to-business sector, chances are your customers pay 30 days in arrears – if you’re lucky. By that time, you will almost certainly have paid your own suppliers, and your cash flow could be in a dangerous position.
However, that’s not the only risk. Let’s say new business wins double your manufacturing volume overnight. Would you still be able to maintain the same level of quality control, or will you have to cut corners, resulting in reputational damage?
What’s more, your new customers will need to be serviced. Would your team be able to cope with a huge increase in the volume of customer calls? And would you be able to recruit new people quickly enough – even if your cash flow permits it?
How you can make business growth work for you
Of course, growth is by no means a bad thing. In fact, it’s essential in order to stay in business. So how can you make sure it benefits you, rather than putting you at risk?
The first thing you need to do is forecast your cash flow. Revenue and profitability are important markers of success, but they mean nothing if you can’t pay your bills. If a sudden increase in orders would strain your cash flow beyond breaking point, you need to make sure you’re prepared by establishing a line of credit or other flexible borrowing facility.
It also makes good sense to look at your more established competitors and how they run their businesses. They will have experienced the challenges of business growth you are currently going through – and clearly charted the right course.
Keeping a checklist of the areas that will need attention – such as customer service and manufacturing – can be helpful in focusing the mind, and you should continuously obtain feedback from your team on the issues they are facing. Paradoxically, you should also control costs more carefully than ever: not just to tame a troublesome cash flow, but in case your growth spurt comes to an end and you experience a slowdown.
Finally, some customers are more trouble than they’re worth, and can be so demanding that they consume an unreasonable amount of your time. If one customer is driving down the level of service you provide to all the others, you should consider resigning the account and focusing on growth elsewhere.
How alternative lenders can help
If you experience a sudden cash flow crisis, an emergency loan can give you the money you need in less than 24 hours to support your growing business. Alternatively, for longer-term borrowing, asset-based finance enables you to borrow against the value of your premises, plant or equipment.
However, if you wish to resolve cash flow issues for good, you should consider invoice factoring or discounting. These innovative solutions allow you to borrow up to 85% of the value of your invoices as soon as you issue them, with repayment being made when your customers pay you. With invoice discounting, you retain control of your own debtor ledger, whilst with factoring we assign our experienced credit control professionals to secure early repayment and minimise the interest you pay. Either way, slow-paying customers can no longer put your growing business at risk
As Managing Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business. Carl continues an ethos of working with distressed businesses to help them overcome their financial problems.