Since before Cleopatra ran a side hustle at the Alexandra markets business folk have known that cashflow is one of the biggest problems business owners have to face. Starting a business requires cash, and growing a business requires even more cash. Business owner need cash for working capital, facilities and equipment, and operating expenses. Less people understand that profitable business can grow too fast, and can run out of cash. A key challenge for owners of any growing concern, then, is to balance between using cash and generating it. Fail to strike that balance, and even a thriving company can soon find itself out of business—a victim of its own success.
The real question to ask and know the answer to is
HOW FAST CAN MY BUSINESS GROW?
Luckily since Cleopatra’s side hustle we have discover how to calculate the self-financeable growth rate (SFG); and if focusses around three key factors;
The first item is the OCC – the time cash is locked up in working capital before the money is returned when customers pay for products and services sold. Depicted below.
Calculating Your SFG Rate is done by collecting key data rom your financial statements (P&L and Balance sheet) and calculating your sustainable growth rate as below;
Knowing your sustainable growth rate is 19.6% (in above example) is one thing, but knowing what levers you can pull to improve your ability to grow is another. Some common levers include;
You will also have to learn how to manage complicating factors,
In the current uncertain times the effect of INFLATION and increasing INTREST RATES will have on operating cost are a significant input.
So, do you know what growth rate is sustainable for your business? Do you have a strategy to maximise growth without sending yourself broke? Have you considered a safety factor for contingencies .
If you are not across this you should be.
If you would like to know more ring Michael on 0417 178 493 to discover how to deliver sustainable growth in uncertain times.