How to scale up your business without ‘growing’ broke | Sage Pay

How to scale up your business without ‘growing’ broke

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“How can I achieve effective business growth?”

This is one of the core challenges that any business owner will have to face. In their best-selling book, Scaling Up: How a Few Companies Make It…and Why the Rest Don’t, author Verne Harnish and the team at Gazelles provide some key tools and techniques for successfully growing your start-up and small-to-medium enterprise (SME).

According to Harnish and colleagues, if you want to expand your business, you need to focus on the following four key decision areas to get it right. These relate to people, strategy, execution and cash. The authors believe that a businesses’ ability to attract and keep the right people and create a “truly differential” business strategy is what gives it the necessary leverage to grow. Add to this flawless execution and enough cash in the bank to weather the inevitable storms, and your SME will be well on its way to achieving successful growth.

Because cash flow is close to any business owner’s heart, this blog will focus on ways to financially fuel business growth, without sinking the business or having to jump ship halfway.

Avoid ‘growing broke’ by attending to your cash conversion cycle, say the experts

Scaling up a business is a costly exercise. Harnish and colleagues stress that any SME wanting to comfortably weather a season of growing pains, needs to build up enough internal cash flow and reserve to meet the cost of expansion. The alternative, sadly, will be to ‘grow broke’.

As the owner of an SME, you want to reach the point in your cash conversion cycle (CCC), where you are earning more money than you are ‘bleeding’ out. In short, you want to be pulling in profit quicker than you are spending it. To accelerate cash flow, you will need to find ways to improve your CCC, advises Harnish and colleagues, which means that you need to pay close attention to the various sub-cycles, or cash cycle components, that may exist within your CCC, to see how you can optimise them.

Improvements can be made to your cash cycle components by focussing on three general categories

Scaling Up provides readers with a great tool, the Cash Acceleration Strategies (CASh), to help you think through your company CCCs component by component. According to Harnish, a company’s cash cycle components (i.e. its Sales, Production and Inventory, Delivery, and Billing and Payment cycles) can be enhanced by either shortening cycle times, eliminating unnecessary mistakes, and by changing the business model.

While a number of practical tips are provided within the book to accelerate cash flow – such as getting invoices out quicker, giving value back to customers who do pay in advance or on time, or pulling in an external funder – another option for shortening cycles and eliminating mistakes across them is to automate cycles.

How can businesses ensure that they get paid on time?

When it comes to a businesses’ Billing and Payment cycle, advances in fintech, such as electronic payment instruments, are the way of the future. As are automated invoicing and debit order collection systems. A major benefit of automation is that it ultimately saves time. Manual invoicing, chasing up payments to get them paid on time, and reconciling payment-related information is time-consuming. Delays in payments leaves a business in a cash-flow limbo, which is not ideal.

Fintech already exists that allows for secure online payment transactions. ‘Online’ simply means that accessing these existing applications doesn’t require you to purchase or install software. You also don’t need to worry about software upgrades as all updates are done online.

Not all fintech is made equal, however.

When looking for an online electronic payment and debit order collection product, be sure that it:

  • Provides one secure online account that gives you access to salary and supplier payments, risk reports, ecommerce payment solutions and debit order collections;
  • Allows you to pay salaries and creditors while also collecting recurring and nonrecurring debit orders from different types of accounts and credit cards;
  • Produces risk reports to assist you in reducing bad debt and manage risk exposure;
  • Conduct commercial and consumer credit checks from multiple credit bureaus;
  • Allows you to issue invoices to your clients while offering multiple, secure payment options (i.e. credit card, bank EFT or cash);
  • And allows for the automatic reconciliation of payment-related information.

Ultimately, you want this product to offer all these features at a price that is lower than your existing bank fees – otherwise, why bother?

For information about Sage Pay’s online payment solution, feel free to contact us. We will be happy to talk you through our unique fintech offering.