Cash Flow Project – Growing Your Business Too Quickly

Mike Weimar

Cash Flow Project

Ent 650

Growing your business too fast

Unexpected growth in revenue is a good problem to have in business. Many struggle to gain new customers and build long term business relationships. If new business is coming quickly to your start-up, that is excellent news! However, that growth needs to be profitable. Unprofitable growth can lead to cash flow problems. Without proper controls, significant and unexpected growth can seriously damage a business’s cash flow and their ability to pay the bills.

The founder of a start-up is passionate about their business and customers. They want to exceed their expectation, which will turn into additional sales. However, it is essential to focus on cash flow. Additional revenues do not necessarily equate to additional profits without proper management of the business. Growth is vital for a new business, but it is even more important to experience profitable growth.

A founder may complete the negotiation of a price with a client on a large contract. It might be larger than any other deal that the owner has had an opportunity to gain. So naturally, you would like to be as sharp as you can on your price offer. There is a lot to think about besides price alone. The following questions need to be considered.

1. How much time will this contract take me away from existing customers?
2. How much time will this contract take me away from pursuing new customers?
3. How quickly will this new customer pay?
4. Will I have to hire additional staff to service all of my customers, including the new customer?
5. Considering any other expenses, including extra labor, will the additional revenue make it the bottom line or just be eaten up by costs such as labor, receivables, or additional controllable expenses incurred as part of the service?

Without consideration of the above questions, a business owner could easily find themselves in the position where the revenue they are gaining is being used to pay the bills. When that happens, the path to profitability is not pretty. One might consider delaying payments to vendors. However, this could ruin your vendor’s relationship, which you have worked hard to build. Another option is you could decrease the quality of your service or product. The downfall is you may lose customers and gain a bad image. An unintended consequence of growing too quickly is poor customer service. You and your staff may not have enough time in the day to respond appropriately to customer needs. Another possibility is the lack of inventory. Not having the proper cash flow could result in having to decrease the amount of product carried in stock because the owner cannot afford to pay for extra inventory.

In most cases, profitable growth is worth the wait. An owner needs to feel confident that their product or service is worth the price they are asking. Once a deal is locked in, it isn’t easy to increase the price if it is necessary for the future.

15 Signs You are Scaling your Company Too Quickly, (2018), https://www.forbes.com/sites/forbescoachescouncil/2018/03/05/15-signs-youre-scaling-your-company-too-quickly/#3be501746611, Retrieved on 9/3/2020

Entrepreneurial Finance, Rogers, S., (2014), ISBN 978-0-07-182539-9, McGraw Hill Education