How to avoid business growing pains

It’s a problem any small business owner or start-up entrepreneur would kill to have: growing pains. Growth is the goal for everyone in business, and every large corporation started out as a small business.

However, expansion brings with it a whole set of new issues, particularly when it comes to cashflow management. More than half of new Australian businesses are likely to fail within the first five years of operation. More often than not, this can be attributed to cash flow management, or more accurately lack of cashflow management.

Managing cashflow when your business is expanding is a real challenge – but one that needs to be overcome if you are to achieve real, sustainable growth. The first step is developing a plan for your business’s expansion, and it is important that you consider why you’re going to grow, not just how it will be achieved.

While your business plan should set out a road map in terms of how you will meet your targets and objectives. Look at it instead as a blueprint to help make better decisions in the running of your business. Seek feedback from your advisers, clients and shareholders on whether it is a realistic plan, and ensure you update it once a quarter to ensure its currency, and to monitor your progress.

It is vital that you monitor your business’s cashflow throughout every phase of expansion. This is not something that requires advanced accounting skills, and most of the time a business owner will be more than capable of keeping track of their cash on their own. However, for an over-worked business owner, employing or retaining a professional can be a worthwhile investment .

Cashflow gaps can emerge at any stage, particularly for new businesses. There are several factors that should be considered before you can attain the holy grail of a continuous and uninterrupted cashflow, and it is quite common for new business owners to have to give their businesses a financial boost before they actually get to enjoy uninterrupted cash flow.

Taking out a loan is one option in order to fund business expansion. Weigh up the benefits and downsides of borrowing money, including the interest rate and the overall length of the loan, in advance of taking such a step, as borrowing money can make or break your business.

Another alternative is to monetise your account receivables by converting your unpaid invoices into cash. This form of finance is known by many terms such as invoice discounting, debtor finance oreven factoring. There are also many products but as with a loan ensure you understand all the fees and charges and whether there is a lock-in contract obligating you to fund all invoices for a contracted period. Whilst the headline rate may look attractive, some invoice financers hide a myriad of fees in the fine print, so do your homework and look for a financier offering a transparent and disclosed fee structure.

It is vital that a growing business has settled on a plan as to how additional costs will be properly financed prior to embarking on a push for significant growth. To kick start productivity and launch your business into expansion, you may – for example – need to cover immediate expenses without waiting for customer payments.

Many a teenager has lain awake at night due to the agonizing phenomenon known as growing pains. By planning and getting the right advice, you can ensure that the growing pains of your business won’t similarly keep you awake.

Angus Sedgwick, CEO, tim. (The Invoice Market)

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