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Cash Flow tip – How to manage growth in your small business - 4 traps to growth
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Published on Thursday, 23 November 2023 12:25
Many business owners want to know how to manage growth in their small business – both for the challenge and potential pay-off when they sell later.
But beware of 4 common traps to growth that lead to disaster (mainly wrong thinking/beliefs) to avoid -
- Build it and it will sell itself – many new ideas come to entrepreneurs all the time – but not everything succeeds for outside and internal reasons – eg - no real demand, lack or poorly-prepared marketing plan (often a weak spot for small business owners), lack of financial budget plan (handling the cash flow).
- I can/will do it all – Common error to fall into the “if it’s to be done no-one does as well as I do it” trap. Yes in the early days you have to do most yourself – but document the method that you find works best, then teach someone else to do it so you can move on to other things. A good explanation is found in “The E Myth” by Michael Gerber. Paint a clear picture of what the future business will look like/become, write out the Organisation chart of the key roles of the organisation and job descriptions, find/create the systems required to make the business efficient, and get employment/HR help as it is a whole new mine-field of managing people and financial responsibility!
- Bigger is better - When owners work on business growth, they often focus on sales, but a look at industry benchmarks often reveals that businesses in higher sales brackets aren’t always the most profitable. Often, businesses with modest turnover can achieve better profits, where-as too often, as a business grows, overheads can get out of hand and the extra sales get eaten up then profit falls. So sales and marketing plans are very important – and testing and measuring as you go is paramount – set budgets and create reports at least monthly to track how you are going.
- Growth solves Cashflow problems – Nothing just happens without careful measuring and managing carefully!!! Ensure the budget is created as already mentioned, know your margins (Gross Profit, Net Profit as minimum). See if there are supplier discounts with larger purchasing volumes, and importantly, if you sell on account/invoice instead of retail, keep monitoring debtor days and don’t get slack on customers taking their time to pay!
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