When your business is expanding, keeping track of your financial position can be difficult. We’ve compiled some expert tips to ensure your growth journey follows a smooth fiscal path.
We’ve collated this advice from businesses profiled in our regular Elevator Pitch column, so it’s road-tested and good to go.
Check your cashflow daily
As Darryl Smith from Redshift Wireless explains, being told to track cash flow closely was the best business advice he had ever received:
I was once given the following advice: “Manage cash flow daily.” The person who told me this pointed out that it does not mean that I should log into the accounting package and bank account daily, but I should have an idea of how much money is coming in and going out. I have heard so many stories about how businesses have failed or almost failed because an employee either did not send invoices out or did not deposit cheques or something similar.
Have a plan on how to spend to expand
If you want your business to grow, you’ll need to work out how to reinvest your profits. Setting a fixed ratio can help, as Andrew Lee from The WOD Life explains:
Investing in the right mix of key products early on provided a solid foundation for our business. We have reinvested our cash flow, 80 per cent geared towards our core offering and 20 per cent to new products and growth opportunities. Through this, we have been able to build our range from our initial sole product to over 500 lines in less than 12 months.
Your ratio might be different, but planning a set amount of “expansion” spending is a solid tactic for growth.
Make sure revenue plans are in place
While there’s an element of startup culture that aims to build a business first and seek revenue paths later, that isn’t a sensible approach for the majority of businesses. While you may not be profitable right from the start, you need to work on attracting revenues and cash flow. Damian Bright from OpenAgent elaborates:
We’ve been focused on being profitable and generating cash flow from the launch of OpenAgent. The sooner a start-up can reach breakeven the greatest chance it has for success it has as it reduces reliance on raising funds. That is about being disciplined on costs, measuring the impact of every dollar spent, and seeking continual improvement in how we do things.
Recognise that you’ll need resources
Even in the Internet era, you can’t run a business for nothing. If you’re selling physical goods, you need cash in place for inventory before you launch. Tom Davies from Chappelli Cycles provides a good example:
Chappelli Cycles is self-funded, which has had a major impact on the way we have grown the business. It has meant our growth has been slow and steady, with every investment decision carefully weighed up against other opportunities. Although we have doubled our revenues every year since inception, we are still often unable to meet demand due to lack of inventory, particularly for new models. Like any physical goods retail business it is very cash-flow intensive and we need to purchase inventory months before we sell it without knowing how well it will sell.
Watch your cash flow like a hawk
Yes, we’re repeating ourselves, but it’s vital advice. As Dr James Freeman from GP2U explains:
It’s important to balance growth and cash burn with revenue stream generation and live within your current means. Startups that run out of cash, stop.
Growth picture from Shutterstock