Orders are flooding in, you’re opening new branches, recruiting new staff and everyone is rushed off their feet. Life is good and everyone is smiling. So what could possibly go wrong?
Believe it or not, this can be the classic profile of business failure, often temporary but on occasion permanent. Hard to believe? Well, here’s why.
The simple explanation is that expansion puts an immediate strain on resources, and it creates an urgent demand to pay staff and landlords that cannot be negotiated. And that is before you’ve considered your suppliers.
Unfortunately, your clients are not guaranteed to be paying you before the liabilities of staff, rent and suppliers cannot be delayed any longer and, simply put, this creates a gap in the cash flow.
Some will suggest that the business should ensure that the clients pay more promptly, but as we all know, that is easier said than done. Striking a balance between keeping clients content and ensuring settlement of debts is often very delicate. However, a highly skilled credit controller can make a huge difference.
There are alternative means of bridging the gap, of which invoice financing is the most familiar. This works very well for many businesses but will incur costs as does the overdraft facility, increasingly difficult to find.
But the key is planning. Businesses that are profitable and can justify their position should be able to overcome any difficulties and flourish when the order book takes off, but the effect on the resources has to be considered in advance.
Keep one step ahead of the game. Look at your cash predictions at for a minimum of a month ahead and ideally at least three months. Be clear about your liabilities and realistic about your cash flow. And if there is still a gap, think about how that can be bridged. You will now have the time to do so, and while cash is king, timing is everything.