Growth is essential for a business. Not only is it a critical measure of success, but it’s also vital to a business’s survival. Businesses that are not constantly striving for growth risk being overrun by competition or becoming irrelevant in the face of changing trends. However, without a well-conceived strategy and proper preparation, trying to achieve growth at any cost can also be fatal. Know the true cost of scaling your business to succeed where others struggle.
Cash Flow is Key to Business Growth
The biggest mistake many business owners make is developing the mindset that growth will solve all their cash flow problems. While it’s true that growth has the potential to bring in more revenue, cash flow problems truly stem more from budgeting and forecasting issues than revenue issues. Achieving sustained growth requires a lot of resources. To achieve it, a business must be able to sustain some losses along the way, and cash flow must be able to keep up.
Business owners serious about getting to the next level must understand the importance of cash flow. It’s not enough to simply have more cash coming in than going out. Effective cash flow management is about building financial stability as a foundation for growth. Cash flow management becomes critical when a business reaches a turning point or transition stage. Having a firm grasp of available cash while being able to forecast future cash flows during growth periods is critical, as is having a solid grasp of upcoming spending needs.
For example, a business owner invests money into developing an app believing it will help scale the business. It will take time to develop it, during which the business will be spending money on development costs before it can expect an increase in revenues. Even then, revenue doesn’t necessarily equal cash flow which doesn’t materialize until expenses are paid. In the meantime, the business has to meet payroll and other operational costs. A cash flow forecast must account for the lag between product development and revenue that eventually translates to cash flow.
Practice Sound Cash Management
Poor cash management is a primary reason why many businesses struggle to get to the next level. It often comes down to having a process that effectively accelerates receivables while timing payables. Slow receivables or ill-timed payables can result in unexpected cash crunches. Businesses transitioning to a growth stage should work closely with their business bank to implement cash management tools that will more effectively manage cash flowing in and out of the business.
Have Ready Sources of Capital
When a business enters its growth stage, the need for additional capital can often outpace profits, which is when it must turn to other sources of capital. This is a critical juncture when, for the business to expand and meet growing demand, it needs money it doesn’t have. The biggest mistake business owners make is waiting until they actually need the money before looking for it. The time to build relationships with a bank or investors is well before you enter your growth phase.
Set Realistic Expectations with a Business Plan
Having a clear vision of where your company is going is vital. However, a vision can turn into a pipe dream without a well-conceived business plan. A sound business plan articulates your vision, objectives, and the specific strategies for achieving them. Your plan becomes your rallying cry to get others on board, including your employees, investors, and lenders. It is also the critical benchmark against which your progress is measured.
Ally with a Trusted Financial Professional
Nothing worth having comes easy, and this is certainly the case with business growth.
If you are a business owner who is serious about taking your business to the next level, cash flow planning, cash management, and a true inventory of your resources need to be top of mind.
Of course, this can be hard to see from inside the business, especially as the owner or operator emotionally and personally invested in the company’ future success. This is precisely why having an advisor who can help you sort through these realities can really help you get a clear picture of the true cost of scaling your business—what it will take financially, personally, and emotionally.
If you are a business owner in need of this type of relationship, we encourage you to reach out. At Platt Wealth Management, we seek to empower our clients by providing them with the personal and professional financial advice they need. We serve clients locally in the San Diego, CA area as well as throughout the country. To talk to an advisor, schedule your appointment here.
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Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.