Company growth requires foresight, discipline

Foresight and discipline are two things area experts say are key to running a successful business that can handle the new challenges that come with growth.

“A common startup problem is underestimating the amount of money and the amount of time it will take for the business to really get on its feet,” said Carol DeHaven, a CPA for Samek Fritz & Co. who works with small and medium-size businesses. “Any time a business goes through a big growth spurt, you have the same kind of issues come up. You have the same need for cash to fund the increase in business, whether that’s internally generated or externally provided through investors or lenders.”

DeHaven said an essential part of running a business smoothly is having a good relationship with a lender.

“It’s all about cash,” said DeHaven. “If you don’t have cash coming in you can’t increase sales, you can’t add employees, and there’s some mismatch between timing. … Having a good relationship with a lender to try to smooth out some of that cash flow, I would say, is the key to making the business grow or flourish.”

Regardless of the business type, financial hurdles will arise as the money comes in, said Steve Aduddle, branch manager of the U.S. Small Business Administration office in Springfield.

A business consumes cash, he said, and as a business grows, it will need additional cash to continue operating.

While many think of SBA only as a way to start a business, Aduddle said one of the prime uses of SBA program loans is to handle growth. There are a variety of loans available, including working capital loans and the 504 Loan Program, which is designed to provide financing for fixed assets such as equipment and real estate.

Small-business owners also can turn directly to banks for help in a money crunch.

“There are several different ways for a small business that’s got a chance for quick growth to achieve it,” said Kent Lammers, assistant vice president at Great Southern Bank. “Some involve banks, some involve just how they structure their business.”

For example, Lammers said, if a business is having trouble collecting money from customers, offering a 2 percent discount to a customer if they pay within 10 days could provide the cash flow needed to begin on the next project without using outside funding.

However, when outside funding is necessary, accounts receivable financing can be a good resource for growing businesses, he added.

“If I sold you $10,000 worth of bread and you’re a large retailer and you take 60 days to pay, then what a bank can do is they can essentially fund that receivable at a small discount and then whatever you paid me for the bread, that money would go directly to the bank,” Lammers said.

Lammers said this is the type of program that many businesses eventually outgrow as they have more contracts coming in on an ongoing basis.

Businesses also can qualify for revolving lines of credit. To use revolving credit, Lammers said, the key is to continue to pay the charges off as customers pay their invoices.

“That’s something that a bank is always concerned with on a line of credit – that it does truly revolve, go up and down,” said Lammers. “A line of credit in most cases in a small business should be used to buy inventory for resale or be used to buy raw goods.”

The quicker the line of credit is paid back, the less interest the business owner pays. But business owners must have the discipline to continue to invest money in the business because sales eat cash, he added.

“One of the challenges that comes when sales do increase is to remember that a lot of that cash flow that is new and wonderful for the business needs to stay in the business for growth,” CPA DeHaven said. “It takes discipline to continue to invest a lot of that cash flow into continuous growth.”