Business growth can be taxing––both on your bank account and on your energy levels. Here are three essential business growth strategies to help you overcome growing pains. Keep these tips in your toolbox for when you encounter expansion challenges.
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1. Take control of your cash flow
Business growth burns money. Make sure you have enough cash coming into the business to support expansion.
Here are some tips for taking control of your cash flow:
Generate accurate cash flow projections
Your cash flow forecast is one of your most important business growth tools. It should tell you how much money your business expects to generate over the coming months, so you can budget accordingly. It needs to be as accurate as possible.
“Common cash flow mistakes that we see organisations make include simply setting projections based on 5 per cent of last year or not taking the time to analyse what may have changed in the marketplace,” says Bellingham Wallace Director Mike Atkinson.
Your cash flow forecast is one of your most important business growth tools.
“Another common mistake is not adjusting revenue projections for seasonality, or indeed periods of downturn, such as Easter or Christmas. Organisations also often overestimate the speed at which they get paid by their customers.”
Mike also recommends that organisations forecast on a month to month basis.
“This is critical to managing cash flow as there are wild fluctuations to cash during months when income tax payments or GST payments are due.”
Cut costs where possible
Business growth is a time to be frugal. See if there are any areas where you can save money without slowing down the business, so you can free up more cash to spend on expansion.
“Many organisations fall into the trap of not monitoring costs carefully during growth phases,” says Mike.
“Increases in overheads are often explained away as a function of increased activity. But try to be wary of this approach and avoid becoming inefficient. Remain nimble and stay on top of costs.
Create clear payment terms
Make sure your clients or customers are paying you on time, every time. Create payment terms that work for you and put your cash flow first. You may want to seek legal advice to make sure your terms and conditions will stand up in the event of late or missed payments.
Separate profit from cash flow
Remember, cash flow and profit are two very different things. Even if your business proves to be incredibly profitable in the long-term, you will still need short-term cash flow in order to survive. Make sure you have enough money coming in on a regular basis.
Profit is like food and cash is like oxygen.
“Remember the adage, profit is like food and cash is like oxygen. You can live for a while without food, but you can’t survive long without oxygen,” says Mike.
2. Watch your profit margins
In the fast-paced bubble of growing a business, it can be easy to lose sight of the numbers. Most business owners have a general idea of how their business is tracking, but might struggle to pinpoint exact figures–such as profit margins.
When you’re entering a phase of growth, it’s important to be crystal clear about what your current profit margin is, and–if possible–come up with a plan to increase it over the coming months or years.
“Maintaining gross profit margins during growth should be your goal,” says Mike.
“Obtaining growth for growth’s sake is not sustainable and can cause an organisation to go bust. Well-managed, controlled, profitable growth is key.”
Mike adds that one cost to pay particular attention to is staff wages.
“As you grow and become more sophisticated, you may need to engage more skilled and experienced staff to do the work. In some cases, this may include putting in place a layer of management, which can cost a lot of money and not provide any contribution to the production of sales.”
Make some time to analyse your profit margins with your accountant or governance board. A fresh pair of eyes can usually identify opportunities to increase the margin that you might have previously overlooked.
3. Keep on top of tax
Tax can have a way of sneaking up on you. When you’re busy, the months fly by––and if you’re not careful, you could find yourself pinged with an unexpected tax bill.
“Keeping up-to-date with PAYE and GST payments is non-negotiable from the IRD’s point of view,” says Mike.
“There are strategies for managing your income tax, but if you get behind on PAYE or GST it can be difficult to catch up. If this is an issue with you, communicate early with the IRD via your accountant. Put a plan in place, and stick to it.”
Keeping up-to-date with PAYE and GST payments is non-negotiable from the IRD’s point of view.
Work with an accountant or bookkeeper who will give you plenty of warning about upcoming tax deadlines and make sure you’re on the right track. A good accountant can also identify opportunities where you could make tax savings––an essential service when you’re growing a business as every cent counts.
Each of these three business growth strategies share one important thing in common: being proactive. Running a business can often feel like being a football goalie––you spend most days fielding balls coming at you from all directions. But when it comes to managing the numbers, it’s important that you switch from defence to offence. Try to anticipate challenges before they arise so you can equip your team to meet them head-on. The more prepared you are to grow, the easier it will be.
Looking for more tips to increase profit and achieve business growth? Check out our free ebook below to discover what strategies you can put in place to take your business to the next level.