Growing your company is an extremely exciting time. However, you shouldn’t be jumping into a heavy growth phase without careful planning and consideration.

Growth involves risk, and if your business isn’t built on a solid foundation, it can crumble under the pressure of expansion.

Learn how to grow your business safely and with as little risk as possible:

Gathering Capital

Like everything else in the world, growing a company requires one essential resource – money. You need funds in order to execute your growth strategy. The most common way of obtaining the required capital is to take out a loan or line-of-credit, but before you do this, it’s important to carefully consider all options and financial ramifications.

There are many options available to business owners looking to grow. You may be able to obtain the required capital by “bootstrapping” – using your own operating revenue to expand. This will require frugal financing and an entrepreneurial mindset, but could be hugely beneficial if you can make it work as you won’t have debt to manage.

You can also attract investors to your company. For this, you will need an up-to-date business plan and a very clear idea of the path ahead. You also need to be prepared for your books to be scrutinised in detail.

If you can’t secure a loan through a bank, there are alternate lenders you can approach. If you are lending funds to your company personally then ensure you gain advice on registering a General Security Agreement to protect your investment.

All these options involve pros and cons, and may first require a period of consolidation to pay off previous debt. Talk over your options with a business professional to ensure you’re growing your business safely.

Get strategic

When growing your business safely, you need to be strategic about how and where you wish to grow. There are many different options available to you, and you should be carefully studying the market and your core competencies to figure out where you have the best chance of success with little risk.

Think about:

• - Opening new premises to capitalize on new geographic markets.
• - Expanding your current customer base through new product lines or additional funnels – such as an online store.
• - Adding additional revenue streams through complimentary products/services.
• - Expanding your current team with more expertise.

It can help to survey current or potential customers to get a solid idea for market needs, and carefully research the most cost effective ways of expanding your business safely.

Hiring new employees

Any growth activity is going to involve hiring new staff. However, growing your business safely means not jumping into recruitment without carefully assessing what – and who – you can afford.

Calculate the cost of a new hire – their salary package, benefits, recruitment costs, equipment and supplies, and training costs. Look at your projections and sales forecast and determine if the new hire is within your budget. Then, consider how much revenue a new hire will bring in, and weigh this against your previous calculation. Refer to the employee cost calculator at New Zealand SME Business network for an idea of the cost of a new hire. Consult with your accountant if you’re unsure or are in desperate need to find the funds for a new hire.

Don’t forget that you have other options, for example, you may be able to make up a skills shortage temporarily with freelancers, contract workers, interns, or other temporary workers.

In business, cash is king. Having the right amount of cash in the bank at any time means you’re able to stay on top of your liabilities, as well as continue to grow your business and take advantage of market opportunities.

Here are some ideas on how to increase case flow in your company.

1. Working capital

“Working capital” is the amount of money you have in the bank in order to facilitate the running of the business. It’s a delicate balance to decide how much to leave in the bank, as money in the bank is not being spent on growing the business.

However, working capital works for you even when it’s in the bank by earning interest and protecting your business from the threat of insolvency. If you want to know how to increase cashflow, one of the first things you should do is look into retaining more working capital.

2. Terms of trade

The terms of trade that you agree with your suppliers and customers can dictate your operating terms and procedures. They are likely to include the rights and responsibilities of your company, your clients and your suppliers. Terms of trade protect everyone in the case of a dispute, but they can also dictate cashflow in your business.

You should be regularly reviewing and updating your terms of trade with a view to improving cash flow. For example, a common problem is having terms with customers that don’t sync with the terms of your suppliers, which can create huge cash flow bottlenecks.

McDonald Vague can assist in reviewing trade terms to ensure you are protected, not only for cash flow but also in terms of security.

3. Debtors days

How many days does it take you to get paid by your customers? For many businesses this is the single biggest factor impacting positive cash flow.

Many factors impact on debtors days, including industry trends, and the resources you dedicate to chasing overdue accounts (credit control). One way to manage debtors days is by switching to online invoicing and payment. Accounting software company Xero recently compiled data from the 16 million invoices sent through their system and noticed that companies invoicing online are paid 31% faster than those using other methods.

Strong credit control procedures and a focus on the slower paying customers to get them within trading terms means an immediate improvement in debtors days.

4. Stock control

Having a lot of stock lying around that you don’t need or moves slowly ties up cash. You may have paid for that stock, but have made no recovery on it. It can be difficult to part with a large quantity of stock, but it’s time to have the sale and let the stock go. Free up the cash for more productive use.

5. Consolidation

If you’re looking to increase cash flow in the short term (to get you through a downturn or lean period), then you can cut back on growth activities and focus on consolidation. Growth often requires an overdraft or line-of-credit, and if you don’t have a positive cash flow to start with, this can just be adding fuel to the fire. If your trading revenue is always or consistently short, something radical needs to change within your company. 

Think about ways to build a stronger core business, by paying down debt, streamlining your processes, re-engaging with your top customers and refining your core competencies. 

Prepare a cashflow budget with all payment obligations in it. This sort of honest appraisal needs to occur monthly. Does your trading revenue meet the obligations or is it short? Is it consistently short or a short term blip?

If you think you might be struggling to meet your obligations contact us now.