Can we grow with minimal cashflow?

Having taken over the day-to-day running of my father’s business three years ago, I’ve concentrated on growing turnover, and sales growth has been strong and profits are up. It’s cashflow that worries me – I never seem to be fully in control of it. Our major customer has now increased his orders, which will require significant capital expenditure. What should I do?

A. Colin Mills of the FD Centre writes:

Well done on growing the business successfully to date. You seem to have conquered a key issue for many business owners but, as you found out, growth itself can create problems.

The key is to get good visibility in fi nancial terms of where the business is going, what the key drivers to business growth are and how they might change.

Visibility is achieved by projecting sales, profi ts and cash flow into the future, and understanding where any funding gaps are, how long they may exist and their nature.

Understanding the key drivers to growth is also important as this allows you to access the risk or ‘downside’ of any projection.

Funding gaps, and the nature of them, are critical, in order to help fi gure out the best form of funding that will not only allow you to close any gaps in the short term, but create flexibility to allow for future growth ongoing. In your situation, if there is signifi cant capital expenditure to fund, make sure you consider the various forms of asset finance available.

If you continue to grow rapidly then there may well be a case to consider one of the forms of invoice discounting also. Creating the best funding mix is essential.

Three things to remember:

1) Take action now. The farther ahead you get in terms of seeing funding gaps, the better. Bank managers or any other funding provider don’t really want to talk about problems, only opportunities. You can offer them an opportunity if you talk to them ahead of any pressing problems, and get better rates, by creating a bit of competition.

2) If you don’t have the fi nance skill sets within the business to help decide the best funding mix, or do a really professional job in creating visibility with numbers in profi t forecasts, balance sheets and cash flow statements that all link together – bring in expertise. Banks will get comfort with future projections if they are professionally prepared and they will get even more comfortable if they can talk numbers with fi nance professionals talking on behalf of the business. They can also negotiate the best rates.

 3) Repeat the process on a regular basis. In a fast growing business, especially one requiring capital expenditure, it’s vital to have a constant picture of where the business is going and whether any funding gaps develop as the business changes – and changes will happen.


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