GROWTH WITH PURPOSE: FINANCIAL RISK
February 12, 2020
Growing your company is very much like your sex life. Faster isn't always better.
To grow your business with purpose from a financial perspective, you must have a solid understanding of the right rate of growth versus growing as fast as possible. Are you buying new equipment? Taking on bank loans? Hiring new people? If so, ask yourself why. Is it a need or a want? How do you know the right rate of growth? If you are taking these risks, you've got to know the cost of financing that growth.
If you have visibility to how much you are going to grow, it will change your world and your stress level. Here's how to financially grow your business with purpose:
Know the End Game First
You are growing this company to live your life goals. Do you really understand what your life goals are and what you are trying to accomplish? Have you linked your business growth and needs today with where you want to be in life? Understand the end game first so you can map a plan to get there.
Assess Your Financial Risk - All the Time
Take ownership of your finances, and you know your financial state. Can you see where you are making or losing money on your profit and loss statement? Is it in profit or cash flow? Compare your balance sheet to another time period and assess how you are doing. Be obsessed with assessing. Obsess about cash, cash flow, growth, jobs, headcount, plus all of your financial statements. You can't overdo it.
Slow Down
Sometimes entrepreneurs have so much business coming in that they don't understand they may be losing money on all that business. It happens all the time. It sounds cliché but it's true. You need to be the best, and sometimes that means not being the fastest.
Be Aware of Internal Risks
One of the biggest mistakes entrepreneurs make is they don't have a cash flow forecast. Tracking cash flow is a top priority. You must understand the money that is coming in and going out of your business so you can plan for growth, regardless of what your income statement says.
Another mistake entrepreneurs make is under hiring for a controller, CFO or both. You virtually can't over-hire for those positions. You've got to get the right people. While you are obsessing about your cash flow and financial growth, you should also be obsessing about who is strategically helping you figure it all out.
Be Prepared for External Risks
External risks such as competition, a recession, and world events can significantly impact the economy, and you will need to adjust fast. You should have a plan for when this happens, so you don't sink the ship. Most entrepreneurs don't cut expenses fast enough. They want to be nice and take it on the chin, but I've learned you have to cut as fast as possible, as painful as that may be.
Organically financing your growth is hard. It takes time and discipline. If through controlling your rate of growth and dialing in your risk you can drive higher margins, it will make a big difference in your sanity, your team's sanity, and the financial volatility of your business.
How do you assess your financial risk to grow with purpose? Share with us on LinkedIn, Twitter and Facebook!
