Cash flow and leverage are the foundation for lasting small business success.
How can you satisfy your current needs while building up opportunities for growth in the future?
People ask me questions about sales and small business on almost a daily basis. Some of the most popular questions revolve around what owners can do to grow their company.
There are several right answers to this question, but I want to focus on what I’ve experienced to be the most important two.
As some of you know, I recently decided to go back into my family small business. Although this company was started years ago it still feels like a bootstrapping startup because we are starting from scratch.
We have zero revenue, zero cash in the bank and zero customers. This is a real ground zero operation!
Being back in this position has been fun and exciting for me. I especially enjoy simplifying things and getting back to basic operations and basic goals.
As I’m looking for leads to grow the business and mapping out our ideal clients, I’ve come to value two very important things: cash and leverage.
Cash Flow is Vital to Small Business Growth
Cash flow is the blood flow to a healthy business. Without having cash flowing through my business it will be very difficult to operate and grow.
Here’s a real life example. We are currently pursuing a 6 figure client (pretty ambitious given that we are starting from scratch).
If we are awarded the contract we would need to quickly hire 3 full time and 5 part time employees to fulfill the requirements of the contract. In most B2B (business to business) transactions, invoices are paid on a Net30 payment cycle.
That means that our client would have 30 days from the time they receive the invoice to pay the balance due on the invoice.
That’s a complicated way to say that we would need to have the cash on hand for payroll to cover the first 60 days!
This is one reason why having cash is so important and vital to a small business that’s trying to grow.
Could we grow without using this strategy? Of course! Could we build slower and go after smaller clients? Absolutely! How slow or fast you grow is completely up to you!
My decision for us to ramp up fast is three fold:
Take advantage of this rare opportunity.
Increase revenue and cash flow to aggressively go after more clients in a competitive market.
Use our resources, processes, and experience to handle it.
Leverage Creates New Opportunities
This early in the game I would say that leverage is of equal if not greater importance to the growth of the business.
When I look for clients that would give me leverage I think about clients that would give me credibility within my industry or access to profitable referral opportunities.
I believe in this strategy so much that I am willing to trade in profit margin in exchange for leverage!