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Cashflow implications when scaling up your business

As the UK economy starts to open up again, there are new opportunities for owner managers to increase their revenues and super charge their growth plans. Although, this period of increased demand could throw up difficulties for businesses if they do not appropriately consider the potential cashflow implications involved with scaling up.

Things are now starting to look up for SMEs, following the long period of tough trading conditions during the pandemic. One encouraging sign is an increase in the demand for a company’s services or products. Although, its worth bearing in mind that pursuing new commercial opportunities can sometimes result in a negative effect on cashflow, meaning business owners need to plan accordingly.

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In many cases, it’s possible to fund a period of gradual business growth with the company’s existing working capital arrangements. Alternatively, to meet sudden spikes in demand, owner managers may need to invest in a recruitment drive to bring in more skilled workers or consider buying materials in bulk. Although they need to bear in mind that these activities may require an additional injection of cash.

To help owner mangers react appropriately and better understand the cashflow implications of following new business opportunities, effective scenario planning is key. This can involve taking the necessary steps to help bridge any cashflow gaps between work being undertaken and receiving payment.

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Prior to agreeing to a new order or contract, owner managers need to fully understand exactly what the customer would like them to do. For example, if a new project falls outside of the business’ areas of expertise or requires an investment in specialist resources, this could result in a knock-on effect on the business’ cash position. Consistent and effective communication with lenders and creditors can also help to build trust, helping to buy the business extra time in the event that more flexible payment terms are needed.

Most owner managers thrive on seeing their business do well, but that can often mean overlooking cashflow constraints during periods of significant demand, which could result in financial difficulties. Considering the impact of sales-related decisions on the business’ cash position will enable owner managers to take advantage of new opportunities and prepare for a sustainable growth journey.

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