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Death by Growth – How to Manage and Avoid Cash Flow Problems

By: SmallBizClub

 

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Fran Tarkenton sat down to talk with Lara Hodgson about the topic of growth—and how to best make it work. Lara is the Co-Founder and CEO of NOWaccount, and an entrepreneur, speaker, and innovation expert.  She shared her thoughts about the right way to grow, and ways to avoid traps that can cause a business to grow to death. If a business grows too fast, or grows the wrong way, it can actually grow itself out of business, because the structures around it are unable to support it.

Lara had five main points to discuss about growth.
1. Your Largest Source of Capital to Fund Growth Is Neither Debt Nor Equity
Many small business owners start up because they have a specific skillset or a particular passion. Or maybe they see a need, a problem that they want to solve. That skillset, that passion, that opportunity can drive an entrepreneur to grow a business, but it’s not enough to make you successful. There are cash flow questions that will dictate what is possible. Most business owners assume that the key sources of capital to fund growth are debt and equity. But the largest source of capital that any business owner has to fund growth is the capital that the business itself generates. So why don’t people use it? It’s often tied up in accounts receivable.
Instead, many people make the mistake of drawing from whatever capital source they have available to fund growth. Every dollar is not equal, though. You have to use the right type of dollar at the right time for the right use.
2. A Smaller Budget Could Help You Grow More Effectively
Most people think that the more money you have, the better you can grow. The key to growth, they think, is to raise more money. If only they had access to deep pockets, they think, they could grow faster, better, and safer. But the truth is just the opposite. A smaller budget can help you grow more effectively. How can that be true? When you have an unlimited budget, unlimited time, you don’t have to be creative. You don’t have to do things differently. Ironically, you will be more likely to make bad decisions because you can. Those resources will initially insulate you from the consequences of bad decisions, preventing you from challenging yourself to not only avoid bad decisions but to make uniquely good decisions. The small budget that so many small business owners worry about is also an asset when it comes to prompting creative thinking.3. Growth Should Be Driven Not By What You Know, But By What You Notice
Most people think that growth must be driven by the things we know. Small business owners often start a business because there’s a trade they have a skill in, and they are incredibly knowledgeable about that trade. That knowledge leads us to assume that must be where the growth is. But what also happens is that we fail to notice things. Growth needs to be driven by what you notice, not what you know. The things you notice are the biggest opportunities. You’ll see opportunities to change, to get ahead of a trend and do something innovative. You’ll also see chances to change yourself before the market changes and leaves you behind. You have to be focused on what you notice, not just what you already know.

4. Ask Questions Before You Grow
Too many people fail to ask questions before they grow. It’s easy to get excited and caught up in the thrill of selling products, getting more customers, and growing. But before you it, you’ve lost control of the operation that you started in the first place. You lose control of profit margins, cash flow, and other essential questions, instead chasing after them to keep the growth going. It is very difficult to hold back and ask those questions, but if you don’t ask them up front, then the deal that you work so hard to get can kill you.

5. Don’t Take on Risk That You Aren’t Ready for to Grow Your Business
The biggest companies are not always the most successful. A good measure of a successful business is one that has been able to sustain itself for a long time. When you look at the longest-lasting companies in the United States and around the world, the vast majority of them are small businesses, not members of the Fortune 50, 100, or even 500. So does that make growth bad? Absolutely not. But the problem is that too many people do the wrong things when they go after growth, taking on risks that they shouldn’t take. They take on debt, go after the wrong sources of capital, neglect cash flow, and make other mistakes. They assume things will take care of themselves. Lara’s suggestion for this problem is to question everything; assume nothing. No matter how obvious something seems, question it, look into it and find out what the truth is. Then you’ll have the best chance to grow in a changing world.

Special thanks to Anne Quatrano and Kathy Carlisle of Star Provisions and Bacchanalia for sharing their time, support, and establishments to help make this event possible.
Published: May 17, 2013
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SmallBizClub.com is dedicated to providing small businesses and entrepreneurs the information and resources they need to start, run, and grow their businesses. The publication was founded by successful entrepreneur and NFL Hall of Fame QB Fran Tarkenton. We bring you the most insightful thinking from industry leaders, veteran business owners, and fellow entrepreneurs. Follow us on Facebook, Twitter, and LinkedIn.

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