Year-end & cash flow

Managing cash flow after winning your first major customer

Winning your first major customer is an important milestone for any small business owner, yet doing so often comes with a new financial worries. Here, Ormsby Street managing director Martin Campbell discusses some common cash flow concerns and how to cope with them.

For many small and micro firms, the size of the company is the result of being a new business. Owners want ventures to grow, and the first major customer is a staging post in that growth.

That customer could be anything, from a small cleaning firm winning a sizeable trading estate contract, to a homemade jam manufacturer becoming a supplier to a major high street supermarket.

Irrespective of sector, there are often a number of similarities that a small business should be aware of.

Big firms expect a level of service, professionalism and quality that a small business might not yet be accustomed to.

A big contract may require an increase in staff and resources, or may require product or service changes that impact the whole business.

Then there is also the issue of cash flow.

Structure and plan for growth from the start

Ormsby Street works exclusively with small businesses, so I have regular contact with SMEs all over the UK and Europe.

One thing that often strikes me is how so few of these businesses seem to have planned and prepared for future growth.While many of them talk about expansion, there is not always the structure in place to do so easily.

This is important for many reasons. Investors for example, would only be interested in a business that can scale, but also businesses that have thought about scaling can react better to new opportunities and to unexpected downturns.

If a business has been progressing steadily, selling 1, 000 widgets a month, but suddenly has to deliver 10, 000 widgets a month, on time and on budget, then that is a potential problem.

If the plans are in place to scale upwards quickly and effectively, then it is a problem that can be resolved. On the other hand, if the owner is suddenly desperately hunting for materials and plugging holes in the inefficient supply chain, then completing the order could become a herculean task.?

Staffing

An integral part of forward planning is of course ensuring that a business has the right staff structures to cope with a major new contract.

Staff structures might sound like an odd place to start, but it’s something that I certainly didnt do very well in the first business that I founded.

As a founder, and when hiring employees number two, three etc. there is no alternative but to have people covering several bases? at once. Perhaps your designer does marketing, or your project manager does the finances, for example.

As you grow, hiring people with multiple skillsets is incredibly difficult, and quickly becomes unnecessary as your scale reaches the point where there’s enough project management? or finance? for a whole person to be dedicated to doing it.

Good staff planning means you have a clear idea from the start of how you will grow each function in the team, from where it is today to where it would need to be to double or times ten your capacity, and you can do it all with off the peg? job descriptions which are easy to hire.