FINANCIAL MANAGEMENT TIPS
Managing Growth - does growth generate or consume cash?
Well that depends on two things:
(1) The extent to which payments to suppliers, staff, rent, etc are ahead of customer receipts
(2) The level of investment in plant, stock, marketing and overheads ahead of revenue
Usually this means growth consumes cash for a long time before cash is generated. And as banks will typically lend to only match the level of equity in the business, this means careful planning to minimise the cash and equity requirement. To get caught out by this is called 'overtrading'.
Conversely if you are able to pay suppliers after receipts from customers, growth will tend to generate cash. But ensure there is sufficient profit to pay overheads, otherwise a dip in business will trigger a cash crisis.
There are various cash management techniques Camwells can apply for you - just give Chris Challis a call on 07836 774439, or send us an email.