For a lot of small business owners, growth is a key focus, and that often comes at the expense of cash flow. Many people think that making more money, getting new customers and growing your business are signs of success. But, if your cash flow isn’t healthy, growth can quickly become a problem. At the same time, putting too much emphasis on cash flow can make it harder for you to scale and compete. Finding the right balance is the key.
Cash Flow and Growth Are Both Important
Your business needs cash flow to stay alive. It makes sure that you can pay your employees, suppliers, rent and any other costs of running your business, and that you can pay on time. Your business might be making money, but it can still fail if it runs out of cash. Growth is what keeps your business going in a long-term, sustainable way. It helps you to make more money, command a bigger share of the market and keep up with competitors.
But, to grow, you often have to spend money up front on things like hiring, marketing, inventory and infrastructure, which can put a strain on your finances. This is where a lot of small business owners run into trouble.
What Happens if You Don’t Strike a Balance?
Not being able to balance growth and cash flow can cause big problems for your business:
Speedy Growth, But No Control Over Cash Flow
If you grow too quickly, you could run out of money. If you spend a lot on new products and marketing, without making sure you have a steady stream of income, you might have trouble paying essential bills.
Strong Cash Reserves, But No Growth
Being too careful with your cash can keep your business from growing. You might miss chances to scale, come up with new ideas or get into new markets, simply because you want the security of having savings.
Too Much Reliance on Credit
If you don’t have enough cash flow, you might find yourself relying on loans or credit to stay in business. This can help in the short-term, but too much debt can cause long-term financial problems.
7 Ways to Keep Growth and Cash Flow in Balance
To keep growth and cash flow in balance, you need to plan carefully, be disciplined and keep an
eye on things at all times.
1. Regularly Predict How Much Cash You’ll Have Coming In
You can use cash flow forecasting to plan for periods when you’re likely to have fewer sales and when you’re likely to make the most money. You can make smarter decisions about when to save money and when to spend it on growth by predicting your upcoming income and expenses.
2. Put Profitable Growth First
Not all growth should be treated the same, as it’s not equal. Focus on strategies that are the most profitable, such as selling products or services with high margins. Some areas of growth might bring in more revenue eventually, but they could negatively impact your finances in’t he meantime.
3. Keep a Cash Safety Net
Having a cash reserve acts as a safety net, there to help your business get through sales slumps or unexpected costs. If you have money to fall back on, you can take advantage of opportunities when they come up. You don’t need to put your business at risk by spending money you don’t have.
4. Be Mindful of Your Spending
Pay attention to how much you spend, as paying for unnecessary subscriptions, software, expenses and suppliers on a regular basis quickly adds up. Get rid of anything you don’t need – for example, tools that do the same job or subscriptions your team no longer use-and invest in more strategic ways.
5. Make Payment Terms Better
Offer discounts for early payment or make credit terms stricter, as a way to get customers to pay their bills faster. At the same time, talk to your suppliers about longer payment terms when you can. This will help you to keep cash in your business for longer.
6. Keep an Eye on Financial KPIs
Don’t forget to track financial KPIs, as these are what give you an insight into how well your business is turning customers, leads and sales into profits and reliable cash flow. Cash conversion cycles, operating cash flow and profit margins all need to be tracked.
7. Grow Slowly and Steadily
Don’t be tempted to throw caution to the wind and grow as quickly as you can. Grow in small, manageable steps, making sure that your cash flow can handle each stage of growth. This lowers the risk and is likely to lead to longer lasting growth, avoiding growth that’s speedy but quick to disappear.
Getting the Right Balance
There isn’t one right way to run a business, as it’s a unique experience for everyone. Every business is different, which means the right amount of growth and cash flow depends on the business you have, your long-term goals and the type of growth you’re ideally chasing. It’s all about getting the right balance for your business, not copying the balance that works well for others.
If you grow without a reliable flow of cash, you could run into financial difficulty, spending more than you can realistically afford. If you’re dedicated to building a strong base for stable, ongoing business success, you need to carefully manage and balance both.
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For a lot of small business owners, growth is a key focus, and that often comes at the expense of cash flow. Many people think that making more money, getting new customers and growing your business are signs of success. But, if your cash flow isn’t healthy, growth can quickly become a problem. At the same time, putting too much emphasis on cash flow can make it harder for you to scale and compete. Finding the right balance is the key.
