Tips for growing business
Q: I started my own business a few years ago and it is starting to grow rapidly. What are the major areas I need to consider as my business develops?
A: When your business starts to grow it is exciting, but can be a little scary. With growth comes new opportunities and also some challenges.
Decisions made at this stage can have a lasting impact on the success of the business and some of the top issues to consider include cash flow, banking arrangements, tax costs and having the right people to help you.
Everyone has heard that ‘‘cash is king’’, but it’s often forgotten that understanding your cash flows from month to month and your working capital cycle are also vital as you grow.
Understanding how long it takes to convert a sale to cash, or a purchase of a stock item to a sale, is information you need to understand.
If your business has a long conversion time from sale to receipt of cash, this needs to be built into your cash forecasting.
Having rolling cash forecasts, as well as good management reporting (for example, sales and inventory reporting) that support accurate cash flow forecasting are defining features of successful growing businesses.
Your road to growth will also be easier if you develop a strong relationship with your bank.
It’s important that your bank understands your business and ambitions; this can be the difference between success and failure at certain critical times.
An open relationship benefits both sides, and communicating both the good and the bad helps to build trust which is vital to a growing business.
Tax obligations are often forgotten in the conversation about growth. As the business becomes bigger, there are generally more tax obligations (income tax, PAYE, GST and so on).
Businesses sometimes fall into the trap of deferring these payments when cash flow is difficult, and then find themselves in trouble later on.
It’s best to think about this early, consider how to fund growing tax payments and consider tax financing options for income tax payments. There are innovative, low cost and unsecured ways to finance your tax payments that are legitimate but still little known.
Lastly, an independent perspective on the business can bring clarity and purpose.
You can easily be caught up in the day-to-day whirlwind of operating and having clear commercial advice from a trusted source, be it your mentor, board, accountant or lawyer, can help ensure that your business does not make the same mistakes that others have and continues to grow and succeed.