There are a million things that can go wrong in a business at any one time. During a growth spurt, many of those issues become much more dangerous. Investing in growth places additional strain on a business’ budget, which leaves very little room for error. A lost investor, a late client payment, or simple budgeting problems can disrupt a business’ cash flow to the point where operations are interrupted.
This can quickly evolve into a dangerous downward spiral. Cash flow problems mean payment delays for suppliers and employees. Depending on the situation this might just result in a temporary morale or a product quality issue, or it could mean losing suppliers or valuable workers. Those disruptions can then negatively affect client relationships, causing even more problems and eventually destabilising your business.
Even in relatively minor cases, business owners often find themselves scrambling to put out fires, only to find the next disruption waiting the moment they finish mitigating the damage from the first. This makes it difficult to focus on developing and implementing an effective growth strategy, and ultimately results in stagnation. To maintain control as they grow, businesses need to ensure that operations can continue uninterrupted regardless of everyday issues.
Budget properly for growth
While there are a number of ways to manage cash flow problems, there’s no sense in making the task any harder than it has to be. That means taking reasonable steps to avoid running into those issues in the first place. Budgeting can become extremely complex in some organisations, but it’s essentially just a prediction of your business’ cash flows over a set period. By analyzing your cash flows and taking the time to budget comprehensively, you can get a very good idea of what kind of financial risks you business will face at a future point in time.
Your budget should realistically describe your business’ needs, both in terms of current operations, and your growth plan. When that’s done, you’ll need to ensure that the funds you need will be available when you need them. That means tracking incoming revenue and investment income, and preemptively making up for any foreseeable gaps with the financing options that are available to you.
Keep cash flow steady
Once you’ve set a solid budget, you can make future financial decisions with far more confidence. You’ll be better able to predict when problems will arise and how serious they’ll be. When those interruptions strike, you’ll be able to respond quickly and proportionally to prevent any long-term effects. Most often, that means using short term financing to cover for a cash flow issue.
Invoice financing
Invoice financing allows you to exchange an unpaid invoice for most of its value at your financial institution. When the invoice is due, they’ll collect the payment from your client themselves, and deliver the rest of the payment (minus a fee) to you at that time. This allows you to give your business a quick advance, and is especially useful for dealing with an issue where your business is generating plenty of revenues, but those revenues can’t be collected in time to cover costs.
Small business loans
Alternate finance institutions can offer much smaller loans than are generally available from your primary bank. More importantly, businesses can get access to their funds extremely fast, usually in less than 48 hours. That allows business owners to finance shortages practically overnight instead of waiting for a response to a loan application for weeks or months.
Stock loans
If you find yourself in a situation where you don’t have assets against which you can secure a loan, you can make your resources stretch with a stock loan. This type of loan finances supplier purchases, and is secured against the stock you buy with the loan. It’s an especially great option for businesses who are experiencing unexpectedly rapid growth, and don’t have the funds available to fill their orders.
Of course, cash flow solutions aren’t always enough to insulate your business against all disruptions. A critical supplier going under, key employees moving on, or a piece of difficult-to-procure equipment breaking down can still interfere with growth. Not every risk can be perfectly accounted for, but careful cash flow management is a powerful stabilising force. By taking the time to do it well, you can help to mitigate those other risks. After all, suppliers and workers who know they can rely on you are more likely to succeed and stick around, and it’s much easier to keep equipment properly maintained when your organisation is properly funded.
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