HOW CASH FLOW AFFECTS GROWTH

HOW CASH FLOW AFFECTS GROWTH

It’s safe to say that there is no company out there that doesn’t strive to grow at some point in the future. Even if a company is holding off until they have the means to expand and grow, they will undoubtedly want to work towards growth eventually. What’s the point of owning a business if you’re not setting goals and attempting to break boundaries?

So, if you’re like most businesses and looking to achieve sustainable growth there are a few things you need to be aware of and prepare for. Growth costs money and takes time to plan out. If you’re not careful, the growth of your company can actually become your company’s downfall due to growing pains. The main area to look out for is how your company’s growth will affect cash flow.

HOW GROWTH AFFECTS CASH FLOW

With growth comes more spending. This is completely inevitable. As more orders continue to come in, your output will be much larger. For example, you will need to employ more workers to keep up with the sales, marketing, inventory, distribution, manufacturing, services and more. Once more employees are brought on, you might need to expand your office space. As more orders are made and fulfilled, you will need to purchase more materials.

With managing more, processes need to be improved as well. Employees are trying to work faster and more efficient in order to fulfill the increase growth. Without an improved process, you can find that tools mysteriously go missing, customers are complaining more, resulting in refunds or more waste is being produced. As your company grows, the amount of money necessary to hold up the business will become a domino effect.

This isn’t to say that growth is a bad thing. Rather, this is a testament to the importance of being ready for growth to occur. When more money is being pushed out to support the growth, there should be a plan for the company to ensure they are getting enough cash flow back in.

HOW TO IMPROVE CASH FLOW

Most businesses assume that if they are making more sales, the money will simply follow. However, this couldn’t be further from the truth. More sales mean a larger workload for the accounts receivable department, which could bog them down from collecting on all accounts. The accounts receivable department needs to be prepared for the additional accounts and work proactively. This way, you’re collecting off of all your sales and see an increase in cash flow directly related to your growth.

  • Have a credit policy. You shouldn’t be extending credit terms to every new sale you make. Take the time to discover what their trade credit report looks like and decide if they are trustworthy enough to take out a line of credit with you.
  • Invoice early. Sending invoices out as soon as possible lets the customer know you’re serious about getting paid on time and sets the terms of the payment down early on.
  • Send reminders. We can all forget sometimes what is due when. Sending reminders often keeps your payment deadline at the forefront of your customer’s mind.
  • Use automation. Sending constant reminders, invoices immediately and regularly checking up on customers’ credit reports can seem like a daunting task. Using accounts receivable automation allows your team to continue to do their job no matter how much the company grows.

HOW TO DEVELOP A CREDIT POLICY PLAN

Every growing business should be armed with a credit policy to avoid cash flow risks.
Read the guide to develop your own policy.

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