I've got a problem: the better my business does, the less money I have. I'm not alone. Virtually all growing companies have problems with cash flow.

A business going through a growth phase is like a teenage boy -- they eat and eat and eat and yet seem to stay hungry. Sure, they're getting bigger -- and hopefully healthier -- but meanwhile, it's costing a fortune.

In past years, I've had clients who've returned from trade shows glowing, having landed big orders for their young companies. They're excited by their success, but now they have the very real problem of coming up with the money to fill those orders.

They're the lucky ones. Typically, if you want to grow a small company, you've got to sink the funds into new product development, additional locations, or expanded marketing activities BEFORE you make the sales. All the while wondering, "If I build it, will they come?"

When customers come, you've got to pour more dollars into staffing, supplies, inventory, customer service, and all. Healthy, growing businesses cost money -- money you often don't see for many months after you make a sale.

For instance, I'm a book publisher. I get paid by my distributor three months after they ship an order to a bookstore. I might be able to handle three months of a cash flow crunch. But I've had to pay people to edit, layout, print, and ship the books months in advance. The more books I sell, the more money I have tied up.

Before you start looking for money, sit down and create realistic financial projections. Do you need money to fill orders? Do you have good accounts receivable? If so, you'll be able to choose different solutions than if your growth is more speculative. After all, while you might turn to Aunt Betty for a loan to fulfill a big order from a long-standing customer, you wouldn't want to ask the dear lady to fund a marketing campaign that might or might not be successful.

So what are the options? How can I -- or any company -- feed the constant appetite for cash of a growing company?

  • Revenues: Funding growth on income from sales is the best -- and the slowest -- way to expand. You can only do that if your company is very small and not cash intensive.
  • Personal debt: If you've got a short-term growth spurt -- the kind from a big order -- you can pull out the credit cards or take out a home equity line of credit. This is expensive, risky, but easy. In the last few years with low interest rates, this has seemed a reasonable way to handle brief cash-flow problems.
  • Friends and family: Another way to handle a money crunch that is certain to be short term in nature is to turn to a relative or close friend. Just be certain that your relationship is one that can survive the debt.
  • Business debt: A typical way to finance growth spurts is to establish a business line of credit. This is a revolving source of money that can expand and shrink as you need it. For bigger expenses -- especially equipment or additional facilities -- you can seek bank term loans. This kind of debt is typically only available to existing, profitable businesses with good credit histories.
  • Suppliers: Buying or producing inventory may be your biggest growth expense. Here's the good news: suppliers have a vested interest in your success -- the more you grow, the bigger orders you'll place with them. Discuss your growth plans with suppliers and see if you can negotiate better terms.
  • Investors: Your growth may require more money than you can charge, borrow, or finagle. So, you may have to turn to private investors or sell stock in your company. This means giving up some ownership -- and control -- of your company.

Remember, you don't have to grow. You can have a small, profitable company that maintains your lifestyle. But if you want to build for wealth and long-term value, you're going to have to grow your business. That means finding a way to feed its hungry appetite for cash.

Copyright Rhonda Abrams, 2003

Rhonda Abrams has just published the new Deluxe Binder Edition of her bestselling book, The Successful Business Plan: Secrets & Strategies. For Rhonda's free business newsletter, register at www.RhondaOnline.com.