Everybody wants their business to grow, but growth can be a challenge if you aren’t prepared for it.
If you’re growing at a rapid rate, then you’re going to have cashflow issues, there’s no two ways about it. You may have more customers than you can handle and need to grow your team or buy new stock to keep your shelves full.
Whatever the challenge, for that sort of growth you have one of two options. If you know what you are doing you can cashflow the growth or you find investment partners. To me the decision is an easy one. You’re going to have to learn to manage your cashflow.
First, look at your cash gap. Cash gap is that lag in what you have to invest to properly grow and when you get paid for it. This is a prime example of where cash flow problems come from. You buy your stock on this day, you ordered it and thirty days later you have to pay.
You put the stock on the shelf and sell it to someone who has 30 days to pay for it and some of them take 60. You can see how the cash gap could lead to bigger problems.
What most companies need to look at in that scenario is how do they move from letting people buy on terms to getting people to buy with cash upfront? How do you move the terms with people buying over shorter and shorter terms?
There are companies in which the cash gap is actually in reverse where they buy it they won’t pay for 60 days yet they sold it well ahead of those 60 days. That’s a much healthier looking company.
But what about companies that exist in industries that have cash gap problems, for example, building contractors. When did you pay the kitchen cabinet people who worked on your last remodeling? They probably get paid at the end. Why? Well, that’s the way they’ve always done it.
That kind of thinking can hurt your business, and it will definitely lead to a cash gap and cashflow problems.
So review your terms, give your clients the chance to pay in installments that meet your cashflow requirements and set the parameters of what you expect from your clients right from the beginning of the relationship.
If you need to be paid within 30 days, but you have clients that wait until 60 days, fire them and find new clients who will work within your terms.
In other words, don’t let growth hamper your business by letting the cash gap get out of control. Remember true growth isn’t necessarily the size of your business, but the size of your profits. Growing for growth’s sake can be the worst thing you’ve ever done for your business, but if you understand cashflow, the cash gap and managing your growth, you’re building a healthy business.
Erni Margiono ActionCOACH 