Investors will tell you they want to see growth; that’s the reason they invested. And let’s face it, that’s what you promised them! The value of your business will rise as you grow and then you can sell it for a big wad of cash and retire to the Bahamas. Your investors will then toddle off to find another unicorn.
So, consider this: Companies can go bust because they are too successful and grow too fast. Why?
Companies fail because they run out of cash, and this can happen even when they are profitable. If you can’t pay your bills as they fall due then you are insolvent. The first rule of being a director is that you can’t trade insolvently. You can be prosecuted.
If you need cash to service your business then it stands to reason that the more you grow, the more cash you’ll need. For example, if you have to pay your suppliers before you get paid by your customers then the more you sell the more money you’ll need to keep those supplies coming. Your business may be profitable (on paper) but you’ll be draining your cash reserves.
If you’re going to embark on a growth spurt make sure that either you have the cash to support it, or (and this is a better idea) you get paid by your customers before you pay your suppliers. Then every sale you make will add to your cash pile.
If you have a good trading record with your suppliers, meaning you’ve paid your bills on time and in full in the past, then you may be able to go to them and request better credit terms if you order more. Any improvement in credit terms will improve your cash flow.
Above all, do the sums, and make sure your drive for growth is backed by the cash you need. Otherwise you’ll be swimming to the Bahamas!
Great advice!