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Growing your business with cash flow consideration

Posted 13/08/2020 by Patrick Leavy

Growing a business will usually boost profits, and that's quite possibly the most common goal for businesses, right? But the secret of the business growth phase is cash flow.

It's all about timing

Inevitably, you will spend first and then reap the benefits, in that order. So, your expenses can quickly outstrip your income if you're not cautious.

An example is new machinery (fixed assets). You need to start offering decent coffee in your bar, so you order a fancy barista machine. Spend first, then get the income later. Or you need a faster computer to do your developing work on, since the jobs you're doing these days are more complicated. Spend first, reap the rewards in future income.

You must spend money to make money”.

This is true, but if you are not aware of the actual time gap between your spending and your earning then you may well run into cash flow problems.

The solution is in three steps:

  1. Take your finances seriously. That doesn't mean be obsessed by them, just acknowledge their importance.
  1. Get good visibility on your cash movements. For this we use a Receipt Bank > Xero > Float combination, but there are other ways to do it.
  1. Start forecasting. Plug in figures for when you know you need to drop more cash. That could be your VAT payment for the quarter. Or the money for that new machine.

There are other factors that affect your cash flow, and these have different fixes. But by starting with those three steps you’ll be well placed to deal with them.

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