Q: Lately my company has seen a lot of fast growth, and I expect that trend to continue. How can I be sure my cash flow is sufficient to sustain that growth?
A: To answer this question, you need to evaluate several interrelated facets of your business. The first step is to take a careful look at where you stand. What is your current sales volume? What kind of margin is that producing? How quickly do you collect your accounts receivable? If you maintain inventories, how many times per year does your inventory turn? The answers to these questions are a start to help you determine the money available to you.
Next, consider how much you’ll need to increase your fixed overheads in order to handle the anticipated growth. Will you be moving to a larger facility? Will your selling expenses go up? What other costs do you expect to increase?
Based on your answers to the above questions, you can now begin to prepare new financial projections. The income statements, balance sheets, and cash flow projections that you develop will tell you if and when you’ll run out of cash.
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