COPING WITH GROWTH

Question:

Having taken over the day to day running of my fathers business 3 years ago, the good news is we’ve done really well. I’ve concentrated on growing turnover, and sales growth has been strong and profits are up. It’s cash flow that worries me and I find it de-energising and I never seem to be fully in control of it. Our major customer has now increased his orders, which will require significant capital expenditure, I’m not sure what to do?

Colin Mills of the FD Centre writes:

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

The key in these situations is to get good visibility in financial 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, profits and cash flow into the future, and understanding where any funding gaps are, how long any gaps may exist and the nature of those gaps.

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, as this can help figure 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.

For example, in your situation if there is significant capital expenditure to fund, you need to make sure you consider the various forms of asset finance that might be 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.

3 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 doesn’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. You can also get better rates, by creating a bit of competition!
2. If you don’t have the finance skill sets within the business to help decide the best funding mix, or do a really professional job in creating visibility with numbers in profit forecasts, balance sheets and cash flow statements that all link together, bring in the expertise to do this. Banks will get comfort with future projections if they are professionally prepared and they will get even more comfortable with the business if they can talk numbers with finance professionals talking on behalf of the business. You will also get the advantage of people who will be able to negotiate the best rates!
3. Repeat the process on a regular basis. Don’t treat this exercise as a one off. In a fast growing business of any kind, but particularly one requiring capital expenditure, it’s vital you have a constant picture of where the business is going and whether any funding gaps develop as the business changes. The business will change!

Colin Mills is founder of the FD Centre, the market leading provider of part-time Finance Directors, available to growing businesses.