Do we dare to believe that the recovery is really here this time?
Latest figures out show that manufacturing is growing at its fastest rate for almost 20 years, retail finally has some good news with like-for-like sales in August up 3.5%, service sector growth at a 6 year high, and reports of increased consumer confidence and people feeling less anxious about their job security.
This of course is fantastic news for the economy, but there are dangers for your business having to cope with growth, particularly when the last 5 years have been an exercise in standing still and possibly even just surviving. Latest figures show that insolvencies are on the rise and I’ve been out talking to my professional network, many are seeing cashflow difficulties already in their clients – cashflow difficulties relating to growth. The insolvency guys are bracing themselves for the inevitable fallout as the economy picks up.
Growth can be a risky time for your business if you havn’t planned for it, as growth will eat up your cash quicker than anything and put an incredible strain on your business.
So these are my reasons why growth can be so dangerous:
1) At the most basic level, you just get a lot busier, putting you and your staff under pressure.
2) As your sales go up, so do stock levels. This will eat up your working capital.
3) As you sell more, debtors go up, again absorbing more cash.
4) You may be increasing your overhead – staff and premises costs, to cope with the growth, so tying up cash way before you get paid. This also puts your break even position up, so you have to sell more just stand still.
5) People tend to take their eye off the ball when things get busier; they stop paying attention to their numbers. Growing sales can give you a false sense of security.
6) Unless your growth is planned for, it can take you away from your business plan and you’re one step away from being a busy fool.
So although it’s great news that growth and recovery finally seem to be here, let’s make sure the growth is planned. You need to be right on top of your numbers, now more than ever. Forecast exactly what growth means to you and work out HOW you’re going to fund it, before cash flow becomes critical in your business.