The Growth Trap

Your P&L is showing more P than L. Your revenue is up. Demand for what you do is healthy and you're pleased because you've earned it.

But, counterintuitively, growing businesses can actually run out of cash. In a weird turn of events, you can be a victim of your own success.

More orders mean more materials, more labour, and sometimes more overheads, all of which need paying before the money from that growth actually lands in your account. Your accountant might call this your working capital requirement. In plain terms, it's the gap between what you're spending to deliver and what you've actually collected.

The first thing I look at with any growing business is whether it has enough cash to fund its own growth, because this is usually what catches people out.

Over the next few weeks I'll be breaking down some of the specific metrics and measures that I use to keep an eye on this; simple metrics that give you an early warning before the gap becomes a problem.