Many business owners assume that growing revenue automatically means their company is becoming stronger and more resilient. While growing your sales is important to your short- and long-term health, more revenue isn’t enough to guarantee your success.
Two businesses can generate identical annual revenue, but only one may survive an economic downturn while the other closes its doors after one tough quarter. The difference comes down to how much financial discipline each business exercises.
Businesses that consistently manage cash flow and maintain healthy reserves will be better positioned when they fall on lean times. Forecasting your future financial needs and seeking experienced financial leadership can provide you with the insights necessary to prepare for the unexpected.
Growth Doesn’t Guarantee Stability
Revenue is one of the easiest business metrics to celebrate, and you should. Winning new customers and unlocking larger contracts are positive developments for your business that can keep the growth coming. But does that mean your company is more resilient? Not if revenue is the only metric you’re watching.
A business can grow quickly and still face serious financial risks, including:
- Thin profit margins
- High operating expenses
- Heavy debt obligations
- Poor cash flow management
Businesses may unintentionally mask these weaknesses when sales are strong. But if they slow down, thin margins and high operating costs will become too big to ignore.
Cash Flow Keeps Businesses Alive
Cash flow is what determines if you can keep the doors open from one day to the next. You can’t make payroll or cover loans with projected revenue. You need cold, hard cash.
Businesses tend to struggle when their money is tied up in accounts receivable and excess inventory. While there are times when you need to be aggressive to grow, you also need the flexibility to adjust if sales slow down.
Forecasting Creates Better Decisions
The missing link for many businesses is the ability to accurately forecast. Financial forecasting shifts you into proactive decision-making mode. You can anticipate future cash needs by evaluating expected revenue, expenses, payroll, and potential risks.
Forecasting can help you decide when to:
- Hire more staff
- Expand your operations
- Purchase equipment
- Invest in extra inventory
The insights you derive from forecasting will also help you set the proper scope of these efforts. That means deciding how many people to hire, how much equipment to buy, and so on. The sooner you can identify potential barriers to growth, the more time you’ll have to adjust before small problems become major setbacks.
Liquidity Is a Competitive Advantage
Businesses with healthy liquidity are positioned to capitalize on opportunities that competitors cannot.
During economic slowdowns, financially stable businesses can acquire competitors, hire talented staff members, and invest in tech upgrades. Businesses that are merely surviving won’t be able to seize these opportunities. Which position do you want to be in?
Why Many Growing Businesses Benefit From a Fractional CFO
Many small and mid-sized businesses have reached the limits of basic accounting. However, they don’t have the cash flow or the need for a full-time chief financial officer. One option is a fractional CFO to provide your business with tremendous value without tying up too much revenue in payroll.
A fractional CFO provides you with executive-level financial leadership on a flexible basis. You can improve financial performance while keeping overhead in check. A fractional CFO can assist with everything from cash flow management to risk identification and planning.
Financial Visibility Leads to Better Outcomes
You make hundreds of decisions every year. Without accurate, up-to-date financial data, many of these choices rely too much on instinct. Regular financial reporting and better forecasting give you the data necessary to make proactive decisions that support your growth while also protecting your agility.
Build a Stronger Financial Foundation
If your business is growing but you’re looking for greater financial visibility, improved cash flow management, or strategic planning support, the team at Zabel & Munson can help. Our firm offers a variety of tailored services, including outsourced accounting and CFO advisory services.
Contact Zabel & Munson to schedule a free consultation and learn about the advantages of our fractional CFO solutions.