We’ve been discussing company growth all week. There are certain things that we need to be aware of when growing a company. First, balancing recruiting and culture – it’s inevitable that as you grow, so will your work load; it’s important that you recruit new people to avoid burning out your current talent. We also touched on customer service and how it shifts during company growth. We, as people, have a propensity to be short and direct when stressed, overworked, and busy; but it’s important for management to ensure that the company culture maintains customer service as a priority – for repeat business and referrals. Today, we’re going to finish off the series with a note on cash flow and managing cash throughout your growth.
It’s only natural during growth, whether you’re an entrepreneur or a seasoned president to get excited at the chance of growing your company and to get tunnel vision. Managing cash flow is incredibly important when you’re growing for a few reasons. Cash flow will undoubtedly increase when growth occurs – so controlling where that money goes is essential to the business; secondly, there are many expenses that arise when trying to grow a company. How do these two situations work together? Well, often you need to invest in order to continue growing (i.e. on new talent, supplies, technology etc.) this can often occur before you’ve actually received payment from your customers. So, managing the influx in cash is imperative. Cash constraints, and poor cash management can be the single biggest detriment to your company’s growth. Not having the money to make the necessary investments will essentially stall growth. Entrepreneurs and upper management often underestimate the amount of cash needed to properly scale a company. There is an old adage that with great risk comes great reward. In an effort to corral the cash to the most appropriate place, you may need to decline opportunities that do not help you achieve the endgame. It’s possible that smaller opportunities that may seem promising, will actually starve your larger goals of resources and cash.
How do you control and effectively maximize your cash flow? There are a multitude of ways, but proper credit management and stringent control of past-due debts is critical. If you are going to delegate these tasks, ensure that you have chosen the right individual to manage this on your behalf. Another option is to raise financing – either via seed money and venture capital, or through government grants; this is commonly preferable to engaging in debt. For a business-to-customer, or b2c company – vendor management and stock management are absolutely critical – increasing inventory turns (the amount of times inventory comes in and goes out of your warehouse) will effectively decrease inventory valuation on hand and free up cash flow. If you’re in an industry where obsolescence is an issue – it would be beneficial to keep someone in control of that – decreasing the amount obsolete inventory on hand will free up cash as well.
Although it may seem daunting – there are some important takeaways from this: avoid tunnel vision – try not to get so excited about the growth that you forget about the day to day; plan ahead and know where your cash flow is going to come from: increasing inventory turns, obtaining financing, and properly managing credit and debts. Just remember that cash flow can prove fatal to a growing company if not properly managed. So, as your company grows, consider the three main moving parts of a company: recruitment and culture, customer service, and cash flow – and decided how to properly manage these to attain the level of growth you’ve worked hard for.