Managing cash flows for growth | SupportBiz

Ask the Expert

Managing cash flows for growth

 
In an exclusive interview series with SupportBiz, Krishna Kumar, Leadership Coach and Founder-Director of the Intrad School of Executive Coaching talks about the challenges small business owners typically face with regard to managing growth in their businesses. In this first piece, he talks about the importance and challenges of managing cash flow.

What are the most common challenges that small business owners face with regards to managing cash?

Most small businesses do not tend to be cash rich. Even when they have some cash, often they face challenges in continuing growing their companies.

For example, if as a small business owner I am looking to increase my company’s revenue fivefold, the current profit I am generating might not be enough for me to grow the revenue and I might need to plow in almost three times as much in cash to meet my growth targets.

In order to finance my growth I will need to hire skilled people who demand higher salaries, invest in land, buildings or equipment all of which have high upfront costs and take time to realize a return on investment.

In addition as I move to a higher turnover, while I generate higher profits and turnover, cash flows can become a problem as clients in this bracket look for longer payment times in projects. In order to net these orders I will agree to the client’s requests. But in order to pay my employees and vendors on time I will need to increase my cash flows.

In order to address this issue as a company we will look to bridge our cash flows through a variety of sources. One option would be to go to the institutions that we have traditionally been banking with and get a line of credit. However in this case we would have to deal with a higher rate of interest, delays in getting the credit sanctioned and we would need to provide collateral for the line of credit.

A second option would be to go to investors to infuse liquidity. They would in turn demand equity, resulting in a dilution of ownership and control over the company. Most small business owners are traditionally wary of this option, as there could be potential mismatches of underlying value systems and principles between the management team and the investor which could lead to challenges and conflicts in the future.

Thus when exploring options to increase one’s cash flows, it is important to keep in mind one’s value systems, as well as the value systems of the company and management team in order to select the option that is most suited for the company’s growth.

 

About the author: Krishna Kumar is a Bangalore-based Leadership Coach who works with C-level executives in their growth journey. An IIT-IIM graduate, Krishna runs a premier tennis academy in the city and uses nuggets from sports in his coaching programs under the aegis of the Intrad School of Executive Coaching. He was recently elected to the Board of Governors of the International Association of Coaching (IAC).