Why Growth Is Killing Your Cash Flow

There are two—old—pieces of advice for business owners looking to grow:

That advice sounds great. There's just one catch. Even though there's not enough cash in your business to do the things you need to do, you're about to fall over you're so busy. To serve more clients, you need more team members, new equipment, guidance from mentors, new technologies. And they all require investing cash you don't have, leaving you in a Catch 22.

While you've been told that growth is the answer to your prayers, the reality is that business growth devours cash, sucking you into a never-ending cycle of needing to grow more, work harder, and deliver to clients faster until you are ready to spontaneously combust with frustration and exhaustion. This concept of business growth isn't working anymore.

If you invested in a five year CD, you have the understanding that you won't get a return until the end of those five years. Small business owners tend to think of investments in growth as quick returns, a sure thing. But growth doesn't happen that way.

Often the bigger the investment, the longer the timeline to see the cash return to the business. On the short end, you could begin to see a payoff in 90 days. More than likely though, the investment will need 12—18 months to show a return of cash to your business. Could you afford to make a five-figure investment in growth and wait 18 months for it to pay off? Very few could. Here's why:

Most businesses are investing cash they don't have. They are robbing Peter to pay Paul because of two things:

Both of these are cash management issues.

Don't be fooled into thinking that this is a smaller business's problem. This issue is more likely to happen in businesses nearing or just past seven figures in revenue than it is with smaller businesses. The problem is masked in larger businesses because there is a constant flow of money.

If you are already getting consistent clients, both of these 'symptoms' are classic signs that you have outgrown the early stages of growth. It's time to move into the scaling stage in your business. To make this shift, you need to change how you manage the money in your business.

Back to the old paradigm of it takes money to make money. The thinking trap most owners fall into is that you have to grow first and then the cash flows. In the new paradigm, you get the cash first, then you scale.

The first step is to conduct a Business Audit that looks at how you can activate more cash with the business you have by looking for where you are:

You then use all this information to activate the cash already hiding in your business. The audit also identifies your scalability factor and enables you to forecast where your business could go in the next 12—18 months if you focused on removing obstacles and taking advantage of opportunities.

Most business owners expect profit to happen at the end of the year. Profit doesn't 'happen' at the end of the year. Profit comes into the business with each sale, and flows out the door for a million different reasons. If you have ever had your CPA say you made a profit, but you can't find it in the bank account, then you need a profit plan.

If you've read Profit First by Mike Michalowicz, then you understand the basic premise. A profit plan essentially puts intention toward your business's profit on a weekly, monthly, or quarterly basis. The plan is different from owner to owner, but the process is that you take profit first, measuredly throughout the year. You transfer the profit out of the operational check account and give it purpose. Because you are not touching the money, the profit grows.

As your profit accounts grow, you gain the ability to make the investments that will help you scale without hurting the operations of the business. Instead of these investments causing stress, you feel powerful and successful.

Ever wish someone could tell you the future? We all do, especially when it comes to managing money in business. Well here's a crystal ball for you—it's called a predictive cash flow tool. Imagine bringing your budget, your standard bills, and your sales pipeline together to form a more complete picture of your money. The tool I use with my clients is PocketSmith, but there are several on the marketplace including Float, Dry Run and Pulse. It syncs to your bank accounts and has a nifty calendar function that can allow you to see your anticipated daily account balances for up to 10 years in the future.

Managing the cash differently in your business requires you to move past the "balance the checkbook" management and use a tool that is as real-time as possible. Once you can predict your cash, you can make better money decisions in your business.

It takes a few hours to set up, but once you do, it takes less than 15 minutes to update and manage the tool every week. The payoff is that you can see where the trouble spots are. You can see what would happen if you make an investment here or what happens if a client delays a project (and payment) by a month.

All of these strategies are like creating a Waze pathfinder for your business. It gives you the confidence to manage your cash, make investments, and build the profit in your small business all while building financial stability. Now that's something to celebrate and carry into the New Year!