Accounts Management

 

 How Fast Can a Business Grow and Survive?

 

If your business is like most, you have to pay your bills before you get paid by your customers. You therefore need to have funds available to cover these commitments — your ‘working capital’.

 

As a business grows, so does its need for working capital. Without careful management, working capital can exceed the organisation’s ability to fund it. And without an injection of additional capital, the business can become insolvent.

 

Some businesses don’t need much working capital because of the nature of their operating model. The lead time between when they have to pay their suppliers and when they get paid by their customers — or their ‘cash operating cycle’ — is relatively short.

 

The length of this cycle, and your net profit margin, impacts the rate of growth your business can sustain. Your business’s ‘Fundable Growth Rate’ or ‘FGR’ is a single number ‘summary’ that reflects your business’s strength across all its elements.

 

Your FGR is a valuable tool for helping you manage your business’s finances, and therefore define strategy. When you’re developing a financial plan for your business, it is as important to consider your cash flow as it is the revenue and profit. Once you understand the real meaning of your business’s FGR and the relationships between the contributing variables, you’ll be better armed to make informed decisions for your business.