Why is it so Expensive to grow? (How to use PFCMS as a Strategic Planning Tool)

| Categories: Business Tips , Cash Management , Future Financial Planning , Profit First

Blog by Fuel Accountants

Have you ever thought about this? When your business grows, cash can become strained. Why is that?

Great question. That shows your interest is piqued!!  

The answer is actually quite simple. When your business grows you need additional working capital. Think about that for a moment. When you hire additional employees, expand your inventory to accommodate more sales, buy additional technology or add licenses. Hey, it all adds up!!

So now what do you do? Hmmm… All these things require additional funding. And more revenue doesn’t always provide enough cash flow to fund it when needed. 

First and foremost, it’s not like birthday presents. You want to avoid surprises. That means that the cash implications for your growth should be planned ahead of time. 

Don’t kid yourself. You need to be asking these questions:

  • If you expand, what additional expenses will be incurred? 
  • Are they one-time expenses (capital expenditures), or ongoing expenses?
  • Can they be funded out of regular business operations, or do you need financing?
  • What is the timing for these additional expenses?
  • When will the additional revenue become available for additional cash flow? 
  • How will you retire any financing required for the growth?
  • What is the anticipated cash payback period (The time it takes to recover the cash spent on the expansion)?
  • What happens if there are delays in collecting the additional cash flow?

Oh yea, so I’m talking about risk? Of course I am! Answering these questions is critical to manage the risks associated with growth. And yes, there is always risk. 
So how do you get out in front of the risk? It’s simple, really. Just properly implement our Profit First Cash management System (PFCMS) into your business.

How to avoid risky business in 2 steps:

  1. Determine the additional cash requirements (amount and timing)
  2. Create a special PFCMS bank account and make it part of your revenue allocation process to accumulate the needed cash.

The results: When you’re ready for expansion, the cash effects are planned ahead of time, and you are able to accommodate your growth.

By the by, this same technique should be employed when planning for capital asset replacement. Computers need to be replaced, equipment wears out, etc. Why not use this same PFCMS process to plan for that?

Need some help implementing PFCMS in your business? We are the experts!! So call us…

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