Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

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Wednesday, May 03, 2017

How Growth Can Kill Your Company



You have worked so hard to build your business up from scratch.

Now, all those late and sleepless nights, all the time away from your family, all those meetings, and all the fights, mistakes and tears – they’re all starting to pay off.


Not only have you just hired the team of your dreams, you’ve just walked out of a meeting with a potential client who could push your business ahead even faster than before – perhaps adding 10% to your revenue single-handedly. That new sports car is looking more likely now…..


















It’s a dream come true, right?

Not so fast.


Here’s a little secret which many business owners only recognise when it’s too late.


The moment when your business really takes off is a moment of grave danger. That is when your finances risk spiralling completely out of control – without you even noticing.


Growth is great. But financing growth, especially rapid growth, can bring its own problems. 


Your expenses suddenly multiply: Think of all those new staff members you have to bring on, the additional raw materials you need to pay for, all the new equipment you must invest in, and the new office space you need. It adds up fast.

Your profits? They often they lag behind.


It can really be a case of “be careful what you wished for”, if the result is that you struggle financially – and even put your business in danger – because you’re just not bringing in money fast enough to cover your expenses.


So what to do?


There are, of course, many ways to finance growth – and most people’s first instinct is to make a bee line to their bank manager.


But I want to suggest one different, cheaper way. 


It goes back to the idea I introduced in my last email, of knowing your cash cycle. As I explained last week, a cash cycle is the time it takes for money you spend today on things like raw materials, inventory or staff to come back into your business, when customers pay for your product or service (along with, hopefully, a healthy mark-up!).


To achieve financial stability while you’re growing, it’s vital that you shorten that cash cycle, keeping the gap between when you spend money and when get paid as small as possible, so there’s always cash on hand.


Perhaps the most obvious route is to incentivise your customers to pay you sooner, so that money comes into your account faster.


You can give a small discount if an invoice is paid in full within a short, defined period. 


If you're carrying out a big project it may also be possible to get paid in stages rather than at final delivery, or to get an up-front deposit. That way you are not waiting for the full amount for long, easing your cash flow situation.


You will be surprised how many companies are happy to pay an upfront or staggered fee. (And by the way, if getting clients to pay you on time – let alone early – is a struggle, make sure you’ve downloaded our guide to getting them to pay you faster.)


At the other end of the cash cycle, you can try and keep money that’s in your account there a little longer. Talk to your suppliers about whether you can negotiate longer payment terms. You may have to give something in return – for example, perhaps be more flexible with your delivery times – so think creatively.


And then you can make use of invoice finance (or factoring). Factors take outstanding customer invoices off your hands – for a percentage fee – allowing you to access their value before the customer has paid them.


Of course, in the long-term a profitable business is more likely to generate enough money to fill its cash cycle. So if you have cash flow problems, the first thing is to make sure your business is profitable – it’s surprising how many businesses are happily growing without realising they’re actually losing money. 


But when you shorten your cash cycle enough, your cash flow problems alleviate considerably. Your growth will be a source of pleasure and excitement – not a source of financial stress!


If you’re growing fast but having problems managing your cash, please get in touch. We’d love to help you. 


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