Growth is great for business, but it can also bring some headaches – like cash-flow strains; starting with stretching resources to meet increased demand, expanding premises, delivering on new projects.
Here are six of the biggest potential cost pitfalls that can throw a growing business into turmoil:
1. Recruitment Costs
Labour is one of the biggest costs in many businesses. Not only does a higher payroll come with increased costs but it also has the added burden of upfront recruitment expenses during times of growth.
2. Delays Between Paying for Stock and Receiving Payment
If you have problems receiving timely payments from customers, it may leave you exposed to carrying stock costs yourself for longer periods without the cashflow to fund it.
Tax instalments are normally based on previous levels of profit and a sudden increase in profitability can leave a tax shortfall that may have to be met in one payment.
When a business is forced to shift premises due to growth, rent is an expense that can involve upfront bond and rental fees as well. Even businesses that have their rent tied to sales turnover, such as retail, can find themselves with an unexpected rental arrears to catch up on.
5. Equipment costs
Strong growth does put more demand on resources and equipment and may see the need to invest in replacement or additional assets sooner than anticipated. You might consider purchasing or renting additional equipment to meet demand.
6. Spending revenue – not profit
Often businesses who receive customer payment upfront and pay the costs of supply later can have trouble keeping money aside to meet the bills.