Take Control of Your Fast-Growing Business
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There is nothing wrong with growing at double digit returns, or scaling a business quickly, as long as emotion and ego don’t cloud judgement and planning. There’s a saying, “When emotions are high, intellect is low.”
This common trap catches some entrepreneurs out when they start to see their hard work paying off through rapid growth, but begin basing decisions on ego and fall prey to the cash flow churn and burn.
Cash flow is the greatest measure of the rate of growth. And there are too many cases of companies that have grown at the expense of their profitability, which eventually collapses the business.
These are a number of considerations that entrepreneurs should be aware of, and use to harness control, particularly to cash flow, when their business starts to thrive exponentially. Here are some factors to ponder.
You always ensure that you get your money in as quickly as possible, but work to push creditors’ terms out to 90 days, if doable. Beware not to get sucked into negotiated terms that don’t work for you and put your business at risk.
Often big growth leads to a national expansion, and frequently the logistics of growing from a localised or regional operator are underestimated. This is one of the fastest ways to burn cash flow. Focus on the target market you want to bed down and remain true to that. It’s essential to regularly interrogate sales and base strategies and decisions on fact and sound judgement, rather than on abundance and big-headedness.
Prepare for the Squeeze
Ensure your pricing and margins are what they are meant to be — don’t give in to dropping your margins for bigger growth. The cost of sales can become tricky once the market starts to observe or learn of your growth. This is especially true for brands in the retail space, who are ‘coerced’ into confidential rebates and discounts when listing in national supermarket chains. Plan ahead and incorporate these costs into the forecasted growth income statements to avoid problematic cash flow issues later on.
Smart Distribution Models
Today’s consumers demand quick turnaround times and the swift growth of ecommerce is further driving this expectation. So, depending on what sort of business you’re in, you need to look at the type of distribution model you want to put into place.
It has to be well thought-through with a long-term view of delivering product in the most efficient and cost-effective manner. Big retailers for instance, are moving towards centralised warehousing, which absorbs fortunes of cash, so reflect on whether or not your distribution model is cost–effective and suitable for scaled growth.
Plan Ahead for People
Build in capacity for human resources before the growth comes in. If this is not timed correctly from a financial point of view, it will destroy customer value. With accurate forecasting that provides relevant information around how the business is scaling, business owners will be able to better plan and manage the growth impact on financials and the people it needs to continue to grow.
Plan for Technology Upgrades
While this may seem obvious, sometimes companies don’t spend enough time or money ensuring that their IT platforms and software is up-to-date and/or can cope with rapid growth to continue to support the business needs. Ensure that you have expert advice and realistic capex set aside year-on-year for ongoing modernisation or upgrades.
Don’t Ignore the Cash Cow
Be careful not to lose sight of your base business as other segments or divisions of your business suddenly go through a growth spurt. Too often business owners tend to focus on the area where the money is, taking their attention off the base business that usually funds the growth of the other division’s performance. You’ll need to free up cash and resources to help fund that growth.
Concept of Leverage
Leverage is the act of dividing efforts and multiplying results, and business owners need to implement this across marketing, time, people and finances to drive continued growth. In the end, it is about spending time where it is needed to build the business, and leveraging all other resources to run the business.