Many businesses experience steady growth simply by working hard to generate word-of-mouth referrals, a loyal customer base, brand awareness and maintaining a good reputation. Other businesses find they need to support their business growth objectives with marketing, advertising and sales activities.
Every business is different and grows differently. You should prepare well before entering into a significant growth phase by considering the impacts that growth can have. How and when you want to grow your business should form part of your overall business strategy.
Cash flow impacts of growth
Good cash flow forecasting is essential for any well run business. You need a realistic forecast that has been calculated from the operations and budget projections of your business. This should then be accompanied by some sensitivity analysis, which is simply alternate forecasts that assess the effect if your basic assumptions are out by 10%, 20% or 30%.
However, good cash flow management is not enough. Unless your cash flow forecasts are accompanied by a capital management plan you aren't in control of your business.
Causes of cash flow stress
- Working capital growing faster than revenue
- Management 'buying' sales at the expense of margin
- Loss of a key customer or market
- General industry downturn or consolidation
Warning signs of cash flow stress
- Difficulty in obtaining finance
- Increase in staff turnover
- Increasing creditor pressure
- Inability to pay tax and superannuation liabilities
- Impending banking covenant breaches
If you find yourself getting into financial difficulties, it is critical not to leave it too late to speak with your accountant or a Heritage Business Banking Manager. Many businesses that end up in receivership could have been saved if they had heeded early warning signs and sought professional advice at the appropriate time.
Both the Australian Federal Government and Queensland State Government have websites containing tools and information to help manage your business and prepare for growth. You'll find their advice invaluable.