Planning for sustainable growth

I’ts been a long time since my last post. Technical issues and a portation of the geniocity.com web site took me off the air for awhile.

I see that issues have been resolved and we are once again on-line so I look forward to continuing our daily conversation about running productive small businesses.

Rapid growth of a business may seem to be a wonderful thing, and often is. However, unplanned growth can be as devastating to a business as planned growth can be good.

A business that suddenly receives an order that is, perhaps, equivalent to half the total sales of the prior year may have these challenges:

• Can production, personnel, and infrastructure be ramped up quickly enough?
• Can the product or service be delivered on time?
• Can customer’s quality expectations be met?
• Is there cash available to pay for material, employees, sub-contractors, etc.?
• Will customer payment terms provide cash in a timely manner?
• Is there a line of credit in place with the bank to supply needed cash?

Companies have often been forced out of business when overwhelmed by the cash flow challenges of sudden sales growth.

Here are some things you can do to prepare for sustainable growth:

• Have a business plan that you periodically review and update.
• Keep your eye on your financial statements, continually projecting cash flow and cash requirements.
• Maintain constant contact with your banker.
• Maintain a line of credit that can be tapped.
• If a large sales opportunity presents itself, seriously consider whether: it is consistent with your business plan; it will enable continued sustainable growth (or is just an anomaly not likely to happen again); can be executed to meet customer expectations of delivery and quality; there will be sufficient cash available to execute the contract while continuing regular business activities.
• When confronted with a large sales order try to get the customer to help finance through a down payment and progress payments. Negotiate favorable accounts receivable payment terms.
• Be prepared to turn down business that is either not strategic or which, after careful analysis, will have a damaging effect on your business.