Managing cash flow in growth situations
Summer 2004
For many small businesses, growth is the barometer for success. But expansion can present challenges, particularly in the area of cash flow. In order to grow successfully, you need to be prepared.
Develop an expansion plan.
Make sure it covers both short- and long-term goals. This is the time to determine not just how you're going to expand, but why. If you feel that you don't have a strong business case once you actually see it in writing, you might want to put your plans on hold.
Get the right financing.
Secure financing for every stage of the expansion before you begin, including contingency financing. Sources might include company profits, personal investments, loans, and lines of credit. Your plan should include the ability to pay back outstanding debt within a reasonable time.
Maintain profit margins.
Even if your overall revenue increases with a larger business, you may be no better off if your profit margins shrink. Don't count on huge price hikes to cover the balance, or you're almost certain to lose customers.
Time it right.
If you're experiencing a difficult or stressful time in your personal life, you may not be able to give your business the 110% attention that's required during a growth phase. Equally important is what's going on in your industry as well as the overall economy. Sometimes, it's best to wait for the right time.
If you're considering a business expansion, talk to your CIBC Business Advisor about your financing options.
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