Talking of money, all high growth businesses need to manage cash. Most businesses swallow up cash; high growth businesses positively devour cash. In most cases, businesses that fail, do so not because of a lack of profit, but because they run out of cash. It’s an old but true cliché that ‘cash is the lifeblood of a business’.
So treasure your cash. In particular, rein it in wherever and whenever you can. For instance:
- try to negotiate instalment payments with customers – rather than simply being paid at the end of a contract or at end of every month. This is especially important when you are having to pay sub-contractors – why should it be you that ‘cash flows’ a project
- make it crystal clear when payment is due. Specify an exact date. Payment due in 30 days means what? 30 days after you sent out the invoice, 30 days after it was received by the customer’s Accounts Department?
- have a dedicated resource. One individual who will chase up relentlessly. Don’t ask your sales people to do this – they won’t! Or they will do it badly – or they end up damaging the relationship with the customer (usually the person you need to chase for cash isn’t the same person that places the order – chasing the latter may be counterproductive)
- take out credit checks and credit references on new customers. Don’t get stung! Former President of the USA Ronald Reagan was fond of quoting the old proverb “Trust – but verify” in his dealings with the old Soviet Union. Your philosophy should be similar when dealing with new customers who ask for credit terms
- Operate clear processes for chasing overdue accounts
- Stop supplying the goods (or the service) if they are not paying!
- If you do decide to stop supplying then let the user know, not just the Accounts Department. You might be surprised how quickly payment then follows!
- Produce regular, updated, cash flow forecasts – Forewarned is forearmed! It also impresses the Bank Manager
- Keep in regular contact with your bank. Share your forecasts with them. They don’t like surprises – so don’t give them any
- Treasure your cash. Don’t let lack of cash derail an otherwise successful i.e. profitable, operation
- Invariably high growth companies will need to explore options for financing expansion. Take specialist advice on these matters ask yourself – do you want private equity funding? Do I want debt? etc