Chart a Productive Path in 2018
A tailwind surges behind a boat, or a business, moving it farther along on its chosen path, at a quickening pace — a pace that can be a challenge to rein in.
The 2018 economy looks promising for business owners. With regulatory changes and the unraveling impact of new tax cuts, there’s money out there — currency ripe for growing your , you can grow yourself right out of business. Rapid expansion can outstrip your ability to generate cash. In boom times, be concerned that you don’t outgrow your operating cycle and cash flow.
Beware of a common trap: Don’t let increasing revenue mask the overall financial health of your enterprise. Here’s how you can keep your business on solid ground.
Keep KPIs in Sight
Watch a range of key performance indicators (KPIs), not just top-line revenue. Rising revenue generates excitement, but it carries the potential to blind a business owner to cash flow and profitability challenges. Days Sales Outstanding (the average number of days it takes to collect on receivables) can be a key indicator. If that number grows significantly, as it can easily happen during periods of rapid growth, distress could be nearing. Sales may be up, but when the time it takes to collect on receivables slows down, money doesn’t always reach the bottom line soon enough to cover expenses.
Revenue, net operating profit, and cash are not synonymous. Successful business owners monitor the deals they close in relation to when the customer will actually disburse funds. During periods of extremely high growth, a weekly review of projected cash flow allows you to remain focused on the true financial health of your business.
This story may sound familiar to government contractors. Often, they win bids and then hire people, but when a contract is delayed or becomes snared in procurement processes, they can burn through their cash while waiting for work to start.
Don’t become so enamored with growth and grow so fast that payroll can’t be met or operating expenses go unpaid.
Cultivate Your Most Valuable Assets
Invest in your people. As economic tides turn, we may no longer see such an employer’s market.
Forward-thinking business owners examine salaries, benefits, and professional development, showing employees they are valued and providing growth opportunities inside the company.
For example, within hours of the recent tax reform passage in December 2017, AT&T promised $1,000 bonuses for its staff when the bill becomes law. Other Fortune 1000 companies followed suit, passing on the anticipated lower tax rates to employees in the form of cash and higher wages.
External Lines of Communication
Vendors and partners play a critical role in business scalability. Don’t simply assume channel businesses can support your company’s rapid growth. Initiate conversations within your ecosystem to ensure your supply chain won’t be disrupted, and will be prepared for growth, in 2018.
A partner’s philosophy could also differ from yours. Perhaps that didn’t matter before, but growth can place strain on relationships. Now is the time to ensure that you are on the same page with your expectations. A vendor might believe you want the lowest price and are willing to accept lower levels of service to get it, but as you grow, rapid delivery and highly responsive customer service might become more essential than a low price.
Fair Winds and Following Seas
Heading into 2018, seize the opportunities budding in our economy. Shoring up your company for rocky times is important, because growth always comes with turbulent waters. Minimize the waves by growing smartly, and harnessing tailwinds instead of allowing tailwinds to harness you.
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