Whenever someone starts a new business, one of the aims is to grow as much as possible in very little time. In good market conditions, and with the right business being launched at the right time, it is quite common for small businesses to grow exceptionally well during the initial period.
But this trend can be very dangerous without proper planning. It can cost the company lots of money, and can also be the reason for the company’s failure!
The Problem with Growth: While achieving growth is one thing, sustaining it is a completely different ballgame. Companies growing at a very fast pace often suffer from low, or even negative cash flow, which can bring the business down. Quite often, small companies are in such a hurry to grow quickly that they tend to forget the basics of any business: profit.
This quest for growth can be a huge drain on the resources of the company, as money is spent on things that are not exactly required at the moment. We have seen many promising companies go down during the dot-com bust. Growth requires planning, stability and maturity to be able to handle it.
Handling Growth: Growth that is not planned can put huge strain on your business’ resources and seriously affect cash flow. So the main aim of a growing company should be to be able to keep the costs down. If your costs are high, even record earnings may not be able to save your company.
While a certain amount of investment is necessary to grow and to compete, this should not be mixed with costs. Here are a few steps that will help you maintain sufficient cash, and fuel growth, so that you don’t run out of funds at the most critical moment in the race.
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Collect your Debts – Fast: Look at your finances, and pay attention to the following facts. How do you bill your customers – cash or credit? When do you prepare the invoices of your clients- on delivery, or at the end of the month? Look at this scenario: if you bill your clients at the end of the month, and offer a 30-days credit, your company is suffering from an average of 45-days of negative cash flow!
Research reveals that for every 30 days that your bills remain unpaid, about 3.5% of it will never be collected. Smart businesses collect their cash fast. This cash will play a huge role in propelling your business further.
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Reduce Inventory Levels – This is a straight-out-of-the-school books approach. We all know that inventory blocks money; and all the stock that is not used or sold is dead inventory. While everyone is aware of this fact, it is surprising how many neglect it when it comes to their own businesses. They continue maintaining huge inventories, which are often dictated by the panic factor (what if I get a huge order and fall short on resources?) rather than sound business logic.
Spend some money in streamlining inventory management. Carry out some research; look at the level of inventory required for your line of business, check how much inventory others are maintaining.
Planning for the growth of your business is sound advice. Do not ignore it!
