When a business owner tells me their sales just doubled, the first thing I say is congratulations. I mean it. Doubling sales is hard and most businesses never do it.
Then I ask how they did it. What were the steps. What changed inside the business to make that happen. I want the real answer, because the real answer tells me whether it can happen again.
And then I ask the question almost nobody asks first. Where is the cash for the next double?
You pay for the growth first
Think about what a bigger month actually looks like inside your business. You buy more inventory. You add hours, or you add people. You pay for more materials, more fuel, more space. All of that money leaves your account first. The customer pays you after.
That gap between doing the work and getting paid is always there. In a flat month you barely notice it, because the money coming in this week covers the money going out this week. When sales double, the gap doubles with them. You are paying for twice the work while you are still waiting on last month's invoices.
So a business can be winning and still be short. Sales up, orders up, everybody busy, and no money in the account on the 15th. Nothing is broken. The business is paying for its own growth out of pocket, and growth is expensive.
The faster you grow, the wider that gap gets. Most owners plan the sales. Very few plan the cash.
Size the cash before you commit
Say you are about to take on a big new customer, or open a second location, or double your order with a supplier. Before you say yes, sit down with your numbers and answer these.
- Are you tracking your expenses, all of them, not just the big ones?
- Do you know what each sale actually costs you to deliver?
- How much money goes out before that customer pays you, and how many weeks pass before it comes back?
- Do the numbers actually make sense?
If you cannot answer those, the plan is not finished. The answers give you a number, and that number is the cash your growth will use up before it gives anything back. Size it first. Then decide.
For the day to day side of this, we have a guide on how to improve business cash flow. That one is the tactics. This one is the reason the tactics matter before you grow instead of after.
Borrowing is not a sign that a business is failing
Most people think a business asks for funding because it is not making money. That is not what I see.
I underwrite the deals that come to us. I have seen businesses bringing in $4 million a month in revenue and still requesting funding. They are not in trouble. They are doing very well. The truth is that people request loans so that their own money is not at risk.
That is the part worth understanding. A healthy business that is growing has a choice to make. It can pour its own cash into inventory and payroll and wait months to get it back, or it can use funding to cover that stretch and keep its own money where it can reach it. If a slow month comes, or a big customer pays late, the owner who kept their cash has room to move.
Where Monera Capital fits
This is the job working capital does. It covers the space between doing the work and getting paid, so growth does not have to come out of your pocket all at once. A line of credit does the same job in a different shape. You draw what you need for the gap and pay it back when your customers pay you. Our guide to working capital loans goes through how these are structured.
We are a funding partner, so the first thing we look at is the same thing I am asking you to look at. What the growth costs, and when the money comes back.
Pick a path and start
When an owner tells me they want to grow, I ask the same things every time. How do you plan on doing it. Do you have a plan. Where are you going to start. How are you going to make this happen.
I am not gentle about it. If I think a decision is a mistake, I say so, because telling someone what they want to hear does not help them. And if what you are doing now is not working, you need to make a change to see change. Running a much bigger business on the same cash you ran the small one on is one of the things that does not work.
So make the plan. Put a number on what it will cost you before it pays you. Once you have that number, you know whether you can cover it yourself or whether you need help covering it. Either answer is fine. Not knowing is the problem.
Then pick a path and start.