Ready to Grow?

Starting a growth strategy takes cash because you usually have to pay for increased inventory or staff salaries before you collect cash from sales. Often lines of credit are a good source of temporary funding for starting growth. Two sources are business lines and home equity lines.

How growth later creates cash flow issues catches many businesses by surprise. The SVP of Business Services of a credit union once told me: “Borrowers don’t go bad 1-2 years after a bad year. They go bad 1-2 years after a good year. They build to a capacity they can’t maintain. They can no longer handle their fixed costs”

These businesses don’t realize they are sowing the seeds of their destruction. Everything works until it doesn’t. Even when cash flow is good, run a cash flow projection with reduced sales. Can you reduce expenses enough to survive? 

One way to prepare for this is to build emergency cash savings equal to 3-6 months of your expenses. Another way to reduce this cash crunch is to keep some expenses variable so they rise and fall with sales. Options include freelancers, contract labor, and renting (instead of buying) equipment and buildings.

Keep your eyes wide open both for the opportunities of growth and the cash pitfalls it may cause. I wish you steady cash flow and I wish you well.

- Rob Stephens

Further Insight

CFO Perspective Resources

  • Video: The Benefits and Problems of Business Growth - The instinctual solution for many business owners is growth. But growth can drown you under an increased workload with smaller margins. Instinct can drive you into the clutches of the growth trap. The perceived instinctual drive toward the “safety” of growth is the very thing that can kill your company.
  • Course: Entrepreneurial Finance - Small Business Financial Management Basics - Get a financial overview of the entrepreneurial journey from startup to operational decisions to exit planning. You’ll hear from a business banker guest speaker who explains what lenders look at when deciding whether to make a loan to a small business.
  • Course: Managing Cash Flow - This course shows you how to assess current and future cash flows. You learn techniques to increase cash flow and reduce dips in cash flow. I list critical sources of cash for businesses, along with the pros and cons of major sources.
  • Book: Conquering Cash Flow: The Complete Guide to Small Business Cash Flow Management - Learn how to manage your cash better so you can improve your cash flow, increase your profits, grow your business, and reduce your stress. Discover proven methods to conquer your cash flow.

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