For small and medium sized businesses, cash flow issues are the most-cited barrier to growth. This is because all aspects of growth require investment, from research and the development of a growth plan, to the execution of that plan, to the ongoing management of existing operations. Apart from those comparatively few who benefit from significant outside investment, businesses are forced to stretch their existing budgets, along with any financing they can secure, in order to finance their growth.


Because of this, the most meaningful step that business owners can take toward enabling their business’ growth in the new year is to focus on and get better control of their cash flow. By learning to manage costs and to apply the right financing tools to particular situations, businesses can free up the capital they need to drive growth without taking prohibitive risks.

Limit unanticipated cash flow interruptions

On any given day, a typical entrepreneur might be doing what would otherwise be three or more separate full time jobs. Small business owners frequently make themselves responsible for a wide variety of tasks, whether it’s managing payroll, chasing down late payments, communicating with investors, managing employees, or jumping in to cover for a sick employee. Because of these extreme demands on a business owner’s time and attention, it’s very common for minor issues to go unaddressed for extended periods of time, until they develop into major problems. Over time, business owners increasingly find themselves running to put out one fire after another, with no time left for innovation, growth plans, or deliberate financial management.

Delegate non-essential tasks

As operations grow, business owners need to begin delegating tasks that don’t explicitly require their personal attention. While it might initially seem more cost effective to take on a wide range of responsibilities, it’s critical that business owners have the time they need to deal with the high level tasks that can’t be delegated. This enables them to maintain a big-picture view of their business, which allows them to spot potential cash flow issues before they manifest. More importantly, it allows them to budget and plan for the future, which is critical to guiding sustainable growth.

Use financing to regulate cash flow for growth

Once a business’ leadership is able to focus on high level objectives and growth, they can begin to take control of their finances. That doesn’t just mean keeping proper track of accounts, but also budgeting, projecting future revenues and expenditures, and putting in place measures to manage cash flow shortages, as well as any unanticipated costs. To do this, it’s a good idea to get in touch with a financial representative at your financial institution to discuss the best options for your business. A few alternative finance tools, invoice financing and supply chain finance, are particularly useful when it comes to consolidating funds for growth investment, and to manage cash flow interruptions that could otherwise cause problems for a business that’s already investing in its growth.

Shortening your cash conversion cycle

A business’ cash conversion cycle (CCC) is the amount of time it takes for a business to convert an initial investment into profit. For example, it takes a significant amount of time for a furniture manufacturer to purchase raw materials, wait for delivery, produce its products, and then sell those products before it can collect any revenue. The time between the purchase of those raw materials, and the collection of revenues on the sale of the final products is the cash conversion cycle. As businesses begin looking at funding growth, this time period can become a major stumbling block.

A small business that’s looking to scale up faces a major challenge as it begins to take on its first large clients. It’s not unusual for a single new client to require a small business to double its production capacity. Paying for that growth, however, can be tricky. Most small businesses won’t have the funds to simply double in size on short notice, but won’t begin billing or receiving revenues from that client until well after the investment needs to be made.

To deal with this issue, businesses can make use of supply chain finance to defer much of the cost of this kind of rapid growth. Instead of paying suppliers out of their own pockets, they can draw from a third party credit fund. The payments on that fund can then be deferred up to 90 days. In an event where the business’ clients enjoy significant payment terms, which could push the CCC well above 90 days, businesses can then also use invoice financing to get access to revenues much sooner. Instead of waiting for a client to pay, they can trade the outstanding invoice in to their financial institution for most of its value. Used in conjunction, these two tools often allow businesses to reduce their CCC below 0, meaning that they don’t need to pay any funds out of their working capital until after the associated revenues are already collected.

A business that can achieve this will be able to greatly reduce the ongoing up-front costs of growth, and be able to grow faster as a result. Moreover, by applying these financing tools strategically, businesses can stabilise their working capital in any number of otherwise difficult situations. In this way, entrepreneurs can build businesses that are more resilient, more profitable, and which grow faster than their competitors.