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Growing smart: Cash flow is king

Growing smart: Cash flow is king

Posted on: September 08, 2015
Author: ATB Business & Agriculture
When ATB’s Ed Straw, connected with Fiasco Gelato owner James Boettcher, one of the issues the two tackled was the company’s growth. In recent years, Fiasco has been doubling its growth annually. James knows it's important to keep that growth in check — and Ed has seen what happens to entrepreneurs who don't.

 

“It comes back to cash flow,” says Ed, ATB Business and Agriculture Vice President of Strategic Business Solutions, “Lots of businesses have their best levels of sales just before they go bankrupt because they run themselves out of cash.”

Ed suggests taking a closer look at your cash flow cycle and make sure you understand it.

“Just because you made a sale doesn’t mean you’ve got cash.”

How quickly that cash gets to you depends on a number of things including your industry and your customers. Be mindful that larger corporate customers typically take longer to pay their bills. While you may be thrilled to have customers like these, know that you may be waiting longer to receive payment.

Growing small businesses often end up moving into new spaces. That can create new cash flow challenges as well.

“The costs are going to come day one,” says Ed, “increased utilities, your equipment, your interest that you have to pay on capital that you borrowed. You need to plan that out knowing that your sales and your cash flow will ramp up slowly but your expenses come right away.”

Expanding businesses also require a solid equity base. According to Ed that could mean exploring new forms of capital such as bringing in an equity partner to put money in, or finding subordinated debt.

If borrowing is in the cards, be honest with your banker and have a realistic cash flow forecast to present.

“I’ve seen many times where people come to borrow money and they show me their plan and their plan shows they don’t need my money!” exclaims Ed. Trying to paint a rosy picture of your business could prevent you from getting the help you need to grow.

Find more advice on managing growth, in the ATB Business Growth Guide
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