Why growing too quickly could be your biggest mistake
Now that the economy has passed its pre-recession peak and business confidence has reached a five-year high, according to the Federation of Small Businesses, many companies are now being faced with very different challenges to the ones they’ve got used to.
It’s to do with growing order books. It might sound strange – surely increased demand for your products and services can only be a good thing? But without the right infrastructure in place, taking on too many orders in too short a timeframe can be more damaging than not taking any on at all.
What are the challenges of growing too quickly?
1. Poor cash flow
When a business trades on credit terms, suppliers must be paid and orders fulfilled well in advance of receiving payment from customers. Add in the day-to-day running costs, such as wages, utility bills and mortgage payments, and cash flow can get stretched quite quickly. So when a business takes on a large number of orders in a short space of time, that’s even more money that will have to exit the business before you are paid. Essentially the businesses runs out of cash, which is why cash flow is so fundamental in business.
2. Scope for late payment
But it’s only a short-term cash flow issue, right? Customers will pay soon which means you’re actually making money. Unfortunately, the ongoing issues with late payment means companies can’t always rely on customers. You might be trading on 30-day terms, but our research indicates that the average invoice is currently being paid 22 days beyond agreed terms. Can your business absorb that sort of cash flow gap?
3. Overburdened staff
Similarly, an influx in new orders will mean the business’s credit control team will be tasked with handling more accounts than they are used to. This could lead to mistakes being made and payment times extended further still. But the effects on internal resource are often felt far wider than this. Staff will be tasked with handling more clients than they are accustomed to, which could increase stress levels and damage morale. While you might opt to grow staff numbers, this adds another expense and might not represent the right decision in the long term, for instance if the surge in new orders is only temporary.
4. Reduced quality of service
As a result of staff having to juggle their time between different clients, the quality of service you provide may well decline as less time will be spent on each contract. This could well lead to poor customer satisfaction and reviews, which will reduce the chances of repeat business and may even lead to a damaged reputation.
5. Strain on infrastructure
It’s not just the staff that need to be considered. A business’s systems and infrastructure must also be able to cater for an increase in demand, whether it’s the amount of floor space that’s available in the office or the time required to set up new clients on the CRM system.
So how can you overcome this?
We recently helped a business experiencing these very issues to absorb the impact, capitalise on their increase in demand and ultimately grow their company at staggering speed – all with the help of a bespoke funding facility.
Tragopan Security Solutions, a provider of security and safety solutions, found that their cash flow was getting stretched when they were experiencing an increase in sales. As a commercial finance broker, we introduced them to invoice finance as a means of keeping their cash flow ticking over. Our client opted for a factoring facility, which included a sales ledger management service to help with the impact the increase in customers would have on credit control. As a result, not only were they able to meet their rising demand, they were on target to achieve an annual sales growth of between 350-450%.
The reason we introduced the client to invoice finance is that it’s tailor-made for growing businesses. By releasing up to 90% of an invoice’s value within just 24 hours of its issue, it effectively funds the cash flow gap between providing a service and getting paid, ensuring a healthy cash flow is maintained and suppliers, staff, utility companies and mortgage providers can be paid.
Meanwhile, the money businesses can access grows in line turnover. The more invoices you raise, the more funding you receive.
If you would like to find out how invoice finance could work for your business, give our team a call on 0800 9774833 or email email@example.com. Alternatively, for an instant indication of how much funding you could access with invoice finance, get a quote in three easy steps.