Why Growth Consumes Cash, and How to Plan For It

The arithmetic

To deliver more work you pay for staff, stock and delivery first. Your customer pays you 30 to 60 days later.

Every new job therefore creates a gap between paying and being paid. More jobs, more gaps, all open at once.

The faster you grow, the wider the total gap, and the gap is funded from somewhere.

Working out what your growth will cost

Take one typical job.

What do you spend before the customer pays, and when?
When does the customer actually pay, not when are they due to?
How many days between those two points?

Multiply the cash gap per job by the number of extra jobs you plan to run at once. That figure is what your growth needs in funding, and most owners have never calculated it.

The three ways to fund it

Customers. Deposits, staged payments, shorter terms. The cheapest option and the one businesses ask for last.

Suppliers. Longer terms from people you buy from. Free if they agree, and they often will for a customer they want to keep.

Finance. A facility, arranged before you need it, at a rate you negotiated rather than under pressure. Lenders price panic accurately.

Use them in that order.

The growth that is not worth having

Not all revenue improves the business.

Work at a margin below what it costs to serve makes the cash position worse in proportion to how much of it you win. Growing that line is actively harmful.

Before scaling anything, calculate the margin on it after direct costs. Businesses routinely scale their least profitable line because it was the easiest to sell.

What breaks first

Almost always the same three things, in this order.

Cash, for the reasons above.

The owner, who is still personally involved in everything and becomes the constraint.

Controls, because a process built for a business a third of the size continues being used, and losses start where nobody is watching.

The financial checks before you commit

Four numbers.

Your cash gap per job, multiplied by planned volume.
Your margin on the specific work you are scaling.
Your committed costs, so you know what happens if the growth does not arrive. Your customer concentration, because growth that increases dependence on one customer increases risk as well as revenue.

What we see go wrong most

Businesses that grow into a large customer, extend terms to win them, and end up funding that customer's working capital out of their own.

The revenue looks like success. The cash position tells the truth.

Where we fit

We build the cash forecast that shows what a growth plan actually needs, before you commit to it. Send your management accounts and the plan.