How To Manage Your Business Finances When Growing Rapidly

ABC FinanceBusiness KnowledgeHow To Manage Your Business Finances When Growing Rapidly

How To Manage Your Business Finances When Growing Rapidly

Business growth is often the aim for any business owner, but growing too quickly can cause other problems. One of the key problems caused is the impact on your business cash flow.

Failure to properly manage your business finances during these periods of rapid growth can lead to negative cash flow, or worse – business failure.

In this guide, we break down why it’s important to manage your business finances closely when growing rapidly, some key tips on how to do that and your options if you need additional help.

Why is it important to track my business finances so closely during growth?

Business growth will usually lead to increased underlying business profitability, but that doesn’t mean that your cash flow will immediately improve.

In fact, the opposite is often true, with your business cash flow often being squeezed by the rapid growth initially.

This is because the growth you experience will usually come with added costs straight away and won’t usually generate cash instantly. This could be due to delayed payment terms, stock costs, increased staff or office costs or just a general increase in your variable expenses.

For this reason, it’s key that you closely track your financial position to ensure things stay on track, secure and under control.

How do I manage things effectively during these periods?

To manage things effectively, you should keep very close track of your current and financial cash flow.

Keeping close track of your current financials, your credit control and using robust forecasting are the starting points.

Let’s dive a bit deeper into the steps you can take.

Forecast cash flow

Cash flow projections allow you to get a handle on the cash that you’re expecting to come in vs the anticipated expenditure.

This allows you to identify any potential holes in your cash flow early and act before you run into serious problems, such as meeting payroll or paying for your business utilities.

Where there are clear holes in your cash flow, identifying it early will allow you to plan ahead and consider your options. Business finance may be required in the form of a business loan or business revolving credit facility, to help you cover costs.

Maintain a budget

Budgeting is important in all areas of life, whether that’s your personal or business finances.

During periods of rapid growth, it may be wise to restrict spending in areas that would otherwise be well funded, such as R&D or ‘nice to have’ items in your business premises.

Manage debt wisely

Consider any debts that you have and whether they can be optimised. For example, if you have an invoice finance facility, can you get a better deal – either a lower cost facility or one that will release more cash to you, easing your cash flow.

This is true of all business debts, and they should all be reviewed. Anything from business credit cards to secured business loans, merchant cash advance and commercial mortgages.

If you can get a better deal, it’s important that you make the most of it.

If you’re too busy managing the growth of your business to do this, then talk to a good business finance broker (like ourselves here at ABC Finance) and they’ll be able to work through all of your facilities and alert you to any favourable deals.

If your cash flow is very tight and you accept payment on delayed terms, an invoice finance facility, whether that be invoice factoring or invoice discounting is likely to be a good idea.

Optimise your expenditure

Track and cut expenses ruthlessly. Consider the cost of absolutely everything and find a better deal, whether that’s your business energy, broadband, phone lines, or your business bank account fees.

Negotiate deals with suppliers and secure delayed payment terms if cash flow is tight, this could reduce the need to borrow money and save you interest.

If you pay out a lot for business insurance such as business building insurance, business life insurance or professional indemnity insurance, review it and look for a better deal.

Funnel your cash to business operations that will generate cash quickly.

Be careful not to cut spending too much in areas that could reduce your business growth in the future such as talent acquisition or marketing. There is a balancing act that must be managed here and the goal is sustained growth, so don’t panic and reduce your future growth potential.

Read more – The Importance of Financial Management for Business Sustainability or 10 Simple Ways To Solve Business Cash Flow Problems.

Strengthen financial controls

Make sure your customers are paying quickly if they’re on delayed payment terms and consider offering a discount for early payment.

If you have a debt factoring facility in place, your provider may help you with this area. If your cash flow is very tight, consider adding bad debt protection to ensure you’re not thrown off course should a customer fail to pay you.

What tools can help me manage this?

There are a few key tools and services that can help you manage, they are:

  • Your accountant – talk to your accountant to make sure they’re fully informed.
  • Accounting software – helps you to stay on top of your company finances. Consider Quickbooks, Xero and FreshBooks.
  • Cash flow management tools – These help you with your cash flow management in real time.
  • Budgeting tools – There are some great tools that can help you to create and manage your budget.

What should I do if my business needs more cash than we can generate?

Of course, borrowing money could be a good options, and it’s a big part of what we do. That said, you may be able to secure funds in other ways, such as encouraging early payment from customers and negotiating delayed payments with suppliers.

Business grants are a great option if they’re available and as your business is growing and may be creating jobs, you’ll generally be popular with those who are offering them.

Are there any other steps that I can take?

If you methodically take the steps laid out above, you’ll be in a great position to ride out the rapid expansion and come out the other side stronger.

Of course, there is always more that you can do, but focus on what you’re doing well and how you’ve managed to grow so quickly in the first place.

Create a plan for managing your finances, but don’t obsess over them. Delivery is always going to generate cash flow, so focus on delivering your product or service quickly and maintain strong credit control.

Of course, if you can keep things steady and return to controlled growth, always aim to do that. Don’t be afraid to turn away work if possible and it will help the long term prospects of your business.

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