We consult with businesses at various stages in their growth cycle. Often times, successful businesses can be presented with unique challenges through growing pains. We work with business owners to develop strategies and create tactics to achieve business goals and reach their growth potential.

Here is a story from one of our clients. It represents some unique growing pain challenges created by the success of their business. To protect the identity of our client, the names and some of the details have been changed.

Sam’s business was growing. He was up to twenty-four employees and barely had time to meet with new prospects or prepare proposals for prospective new business. He was buying new equipment to handle the new customer accounts. His company’s name was getting a lot of “buzz.” Sounds terrific, right? Sounds like Sam is doing what we all want to be doing in our businesses.

You may be thinking having a successful, busy business is a problem I’d like to have. While this may be true, it caused a few major stress points for Sam. First, Sam wasn’t getting to all those prospects with proposals for new business. Second, Sam was also stressed because he was seriously juggling cash. Sam was too often robbing Peter to pay Paul and was perplexed since his business was doing so well.

How is it that a business can be experiencing high levels of growth, but not generating positive cash? The answer may be different based on different businesses and different styles of owners. For example, if a business focuses too much on sales growth, it may lose sight of what it’s costs are doing. Any one cost or a combination of many costs may not behave as expected when the business began to grow sales. Perhaps the business never had the time to think through what costs would do when the sales increased.

Increased sales can also impact other areas of a business operation. Customer service may suffer because there is not enough time to follow up with customers. Production may not be able to keep up with orders at the same pace. The quality of the work output or product may also be suffering.

For Sam, it was a matter of neglecting to look at the timing of outflows and inflows of cash. This mistake is a quite common when businesses grow sales – either intentionally or unintentionally. We have seen businesses go under that were experiencing fantastic growth but did not have ready cash to fund the growth.

Let’s look at what happened in Sam’s business. Sam went from $12,000 in sales per month to $40,000 very quickly. Now remember the twenty-four employees Sam had grown to? Well, that meant Sam had to meet a large payroll twice a month. In fact, his payroll had gone from $4,000 to $16,000 per month. He also had to purchase more supplies and new equipment to service the new customer accounts.

Timing is key. The new customer contracts were invoiced at the end of the month – after work had been performed. Customers usually paid invoices 30-60 days after receiving them. There had been no plan for how Sam would cover the increased payrolls, supplies, and monthly equipment payments while waiting for the customer payments to arrive.

Sam would have to cover $32,000-$48,000 in payroll costs before some of his customers would pay him. This compared to just $8,000-$12,000 before the fantastic growth, so that’s a lot more cash outflow to think about. Add in the additional supplies and monthly equipment payments purchased for the new accounts, and Sam had a real problem with his “cash flow” (or timing of cash outflows and inflows). We’ve all heard “Cash is King.”

Sam had become super profitable, going from $6,500 per month to $20,000. Pretty amazing! Sam had not taken the time to consider how much extra cash he would have out before new cash came in. As a result, his business was crippled when he came to talk with us. Sam was smart and lucky, and he was determined to execute the plan we developed for his business.

Sam’s results were unusual because we were able to turn the problem around within four months. Just one year later, Sam’s business is doing $65,000 in sales per month. We are a key business growth strategy partner with Sam. Whenever he believes he will win more than two additional customers bids in the same month, he picks up the phone, and we go over the numbers with him. We develop a strategy to cover the additional cash outflows while waiting for the new cash inflows.

Sam is one of our success stories and a huge success in his own right. Does Sam’s story resonate with you? Want to take your already successful business strategy to the next level? Please contact us at 540-420-1004 or click here for a free consultation.

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