Good cashflow control is important for any business. For a growing business, it is absolutely crucial, since financial problems can limit or stop the growth of your business. Overtrading can similarly cause grave issues.
Making the best use of your finances should be a key part of business planning and assessing new opportunities. You may need to pass up certain opportunities if pursuing them would take essential funding away from your core business.
How to manage cashflow during business growth
Growth typically increases costs in a business, often putting a squeeze on the day-to-day finances. Borrowing money may relieve some of the pressures, but it can also put your business at risks.
You should carefully control every element of working capital to maximise your free cashflow during growth. Balance the timing and the amount of money flowing into and out of your business with good practices for:
- credit management
- factoring and invoice discounting
- stock control and inventory management
- supply chain management
Prepare for any shortfalls, if you can. Predict peaks and troughs in your cash balance by preparing realistic cashflow forecasts.
In periods of growth, holding obsolete stock may become a problem. You may want to manage your suppliers to reduce delivery cycles, or switch to suppliers and systems that can handle just-in-time delivery.
Planning ahead helps you to anticipate your financing needs and arrange suitable funding. For many growing businesses, a key decision is whether to bring in outside investors to provide the equity needed to underpin further expansion. See business financing options - an overview.
Read more about cashflow management.