At times, growth can be a pitfall. The rapid sales growth with the long cash cycle and /or low margins can lead you to rapid reliance on debt, which can drive you either into distress or into too rapid need to access outside funds at too early a stage and with too little bargaining power.
At the start of your business, create a financial strategy (3 to 5 year) which will outline how you plan to fund growth, predictably, reliably and at a reasonable cost.
Through your business plan, project sales and asset growth. Then derive cash flow statement and forecast from projection of sales, profits and balance sheet component changes.
The cash flow from operations projection and a cash flow needs from investing projection will help you see the implied cash flow from financing is in each period and plan what form of financing you will take.
Use pro forma projections to predict asset growth. This will force you to consider ,measure and manage the asset growth implications of sales growth in economical ways.
Through this financial planning , you will be able to anticipate and control growth and ensure that: needs are not sudden and excessive, investment is chosen to maximize long run value, continuing profitability and liquidity are maintained and a destabilizing excessive amount of debt is avoided.
Case Studies in Finance: Managing for Corporate Value Creation
Case Studies in Finance: Managing for Corporate Value Creation
