While many business owners define growth as an increase in sales, or at least a healthy sales volume, those who concentrate only on sales are putting their emphasis in the wrong area. Sales are important, profit is more important, but cash on hand and cash flow are far-and-away the most important areas by which to evaluate your business.

General Motors had sales of $177 billion in 2007 and $147 billion in 2008, yet posted losses of over $30 billion in each of those years before filing for bankruptcy in 2009. Operating cash flow was positive ($7 billion) in 2007, but quickly went negative in 2008 ($12 billion). While the positive cash flow from operations in 2008 sounds good, it barely covered their required debt service, so the company was not able to save any cash for the large amount of capital expenditures it takes to run a manufacturing business.

Consequentially, the goal of the business owner should be to:

  1. Increase the operating cash flow of the company
  2. Make sure the cash generated is enough to:
    • Pay required debt service
    • Invest in the capital needs of the business (new trucks, operating equipment, etc)
    • Invest in inventories needed for future sales
    • Save for the inevitable rainy day
  3. Create the problem of “What do I do with the excess cash on my balance sheet?” – a problem that very few mid-sized businesses have but all should strive for

Adding the next $5 million in sales to your business is a challenge, and minimizing the inherent risks of rapid growth (over-extended cash flow, capacity limitations, and failure to meet customer expectations) requires extensive financial planning and oversight.

WARNING – all efforts to increase sales result in a short term (hopefully) DECREASE in cash flow, until the timing of cash receipts catches up to the outflow required to increase the sales.

The benefits of growth are significant:

  • Additional cash flow means more money in the bank, which brings the flexibility to take advantage of new investments–in short, success breeds success
  • Financial stability provides security for clients, employees and your family
  • Resilient businesses understand how to weather the inevitable industry or economic downturns
  • For those owners with an eye on ultimately selling the company, increased profit and cash flow directly increases the value of the business at a nonlinear rate–doubling the profit may result in tripling or even quadrupling the sales value of the company

Most business owners therefore want to grow the business, whether through expansion into new products or services, capturing a larger sector of their current market or increasing the geographic scope of their business (Multi-state, international).

While growth through these means is generally referred to as “organic” and growth through acquisition of an existing company or division as “inorganic,” neither occurs on its own. Instead, business growth of either type is the result of careful research and strategy.

Increasingly, it is the company’s CFO who takes responsibility for the planning and assessment of the financial impact associated with operational business growth, whether organic or inorganic. However, many companies in the early stages of growth do not have full-time CFOs on board. Often, the expense of prematurely hiring a full-time CFO would actually impede a young company’s ability to grow.

Your CFO Solutions can help you bridge the gap, providing the expert guidance a CFO would, but without requiring a full time commitment, payroll taxes, benefits and other investments that could weaken your capital for expansion.

Business Growth Pitfalls

According to the U.S. Bureau of Labor Statistics, only about half of new businesses survive for five years or more. While there are many reasons that businesses fail, here are four of the most common:

      • Failure to adequately investigate the market
      • Weak, flawed or non-existent business plan
      • Undercapitalization
      • Rapid expansion

Each of these pitfalls can be avoided or quickly identified and addressed through the work of a knowledgeable and diligent CFO. Having the right expert in that role, whether full-time or through an outside provider, can make the difference between success and failure.

The CFO and Business Growth

In recent years, the role of the CFO has become more and more strategic. Rather than focusing
only on cost controls, maintaining financial buffers and otherwise cutting out waste and ensuring that the company has the necessary capital to maintain operations, the CFO is now expected to facilitate growth.

Toward that end, the modern CFO integrates traditional functions with forward-thinking analysis. Some of the key functions include:

      • Strengthening internal controls
      • Analyzing financial weaknesses
      • Identifying unacceptable financial risk
      • Proposing financial models
      • Making data-driven cost adjustments
      • Assessing the ROI of existing and prospective initiatives
      • Finding cost-effective, acceptable-risk methods of funding growth

Whether a company is seeking growth through new initiatives, targeting new markets or acquisition of an existing company, it is critical to have a knowledgeable financial professional performing the tasks above and many others.

For those companies without a full-time CFO, Your CFO Solutions can fill that need, ensuring that the business has the support it needs before and during critical growth initiatives.

Allocation of Resources

Allocation of resources is a traditional function of the CFO. However, when the allocation of resources relates to growth areas such as new product development, expansion into adjacent product lines and expansion into new markets, many CFOs have less experience and appear to provide less value to their organizations.

A survey conducted by McKinsey Global revealed that only 13% of C-level executives surveyed said their CFOs were effective at allocating resources to process new product development. The same number found their CFOs to be effective at allocating resources for expansion into adjacent products and services, and just 17% positively rated their CFOs’ effectiveness with regard to new market expansion.

Weaknesses in those key areas can slow or even stop growth. Fortunately, the professionals at Your CFO Solutions make it a point to hone the skills that are most useful to a growing company in the current market.

Your CFO Solutions

Your CFO Solutions truly is the solution to your short-term or less-than-full-time need for the guidance of an expert CFO as you develop and pursue your growth plan. We are here to help you:

      • Assess and prioritize growth opportunities
      • Structure growth initiatives so that one step may provide funding for the next
      • Identify the best methods for funding your new initiatives or acquisitions
      • Analyze the true value and growth potential of acquisitions under consideration
      • Recognize when short-term growth isn’t in the company’s best interest
      • Institute the right analytics and put hard data to work
      • Determine the right level of investment in new product development

Are you…

      • A young business just beginning to assess growth opportunities for the future?
      • A rapidly-growing concern that has several growth initiatives in play that needs to ensure a degree of stability during expansion?
      • An established business considering significant growth through the acquisition of a competitor or a company offering related products or services?