Why Growth Is Killing Your Cash Flow

3min Read

There are two—old—pieces of advice for business owners looking to grow:

  • In order for your business to make money, you need to spend money.
  • If you want to create cash in your business so it can grow, you either need to get more clients or cut expenses.

That advice sounds great. There's just one catch. Even though there's not enough cash in your business to do the things you need to do, you're about to fall over you're so busy. To serve more clients, you need more team members, new equipment, guidance from mentors, new technologies. And they all require investing cash you don't have, leaving you in a Catch 22.

While you've been told that growth is the answer to your prayers, the reality is that business growth devours cash, sucking you into a never-ending cycle of needing to grow more, work harder, and deliver to clients faster until you are ready to spontaneously combust with frustration and exhaustion. This concept of business growth isn't working anymore.

Growth investments have a timeline.

If you invested in a five year CD, you have the understanding that you won't get a return until the end of those five years. Small business owners tend to think of investments in growth as quick returns, a sure thing. But growth doesn't happen that way.

Often the bigger the investment, the longer the timeline to see the cash return to the business. On the short end, you could begin to see a payoff in 90 days. More than likely though, the investment will need 12—18 months to show a return of cash to your business. Could you afford to make a five-figure investment in growth and wait 18 months for it to pay off? Very few could. Here's why:

Most businesses are investing cash they don't have. They are robbing Peter to pay Paul because of two things:

  1. Business Owners don't understand that the revenue they are bringing into the business isn't available because it was pre-spent. If you've ever made a purchase or investment, only to have a cash emergency within the next 1—2 months, then this is the problem you had. You spent money you didn't actually have because it was already spent somewhere else in the business.
  2. Most businesses are running on 14 days (or less) worth of cash. If you stress out about making payroll every month, but always seem to make it, this is the problem in your business.

Both of these are cash management issues.

Don't be fooled into thinking that this is a smaller business's problem. This issue is more likely to happen in businesses nearing or just past seven figures in revenue than it is with smaller businesses. The problem is masked in larger businesses because there is a constant flow of money.

If you are already getting consistent clients, both of these 'symptoms' are classic signs that you have outgrown the early stages of growth. It's time to move into the scaling stage in your business. To make this shift, you need to change how you manage the money in your business.

Find the Cash First

Back to the old paradigm of it takes money to make money. The thinking trap most owners fall into is that you have to grow first and then the cash flows. In the new paradigm, you get the cash first, then you scale.

The first step is to conduct a Business Audit that looks at how you can activate more cash with the business you have by looking for where you are:

  1. Leaving Money on the Table
  2. Ignoring Low Hanging Fruit Opportunities
  3. Leaking Money
  4. Missing the Profitability Mark
  5. Managing Strong Metrics

You then use all this information to activate the cash already hiding in your business. The audit also identifies your scalability factor and enables you to forecast where your business could go in the next 12—18 months if you focused on removing obstacles and taking advantage of opportunities.

Change Your Cash Intention

Most business owners expect profit to happen at the end of the year. Profit doesn't 'happen' at the end of the year. Profit comes into the business with each sale, and flows out the door for a million different reasons. If you have ever had your CPA say you made a profit, but you can't find it in the bank account, then you need a profit plan.

If you've read Profit First by Mike Michalowicz, then you understand the basic premise. A profit plan essentially puts intention toward your business's profit on a weekly, monthly, or quarterly basis. The plan is different from owner to owner, but the process is that you take profit first, measuredly throughout the year. You transfer the profit out of the operational check account and give it purpose. Because you are not touching the money, the profit grows.

As your profit accounts grow, you gain the ability to make the investments that will help you scale without hurting the operations of the business. Instead of these investments causing stress, you feel powerful and successful.

Get a Crystal Ball

Ever wish someone could tell you the future? We all do, especially when it comes to managing money in business. Well here's a crystal ball for you—it's called a predictive cash flow tool. Imagine bringing your budget, your standard bills, and your sales pipeline together to form a more complete picture of your money. The tool I use with my clients is PocketSmith, but there are several on the marketplace including Float, Dry Run and Pulse. It syncs to your bank accounts and has a nifty calendar function that can allow you to see your anticipated daily account balances for up to 10 years in the future.

Managing the cash differently in your business requires you to move past the "balance the checkbook" management and use a tool that is as real-time as possible. Once you can predict your cash, you can make better money decisions in your business.

It takes a few hours to set up, but once you do, it takes less than 15 minutes to update and manage the tool every week. The payoff is that you can see where the trouble spots are. You can see what would happen if you make an investment here or what happens if a client delays a project (and payment) by a month.

All of these strategies are like creating a Waze pathfinder for your business. It gives you the confidence to manage your cash, make investments, and build the profit in your small business all while building financial stability. Now that's something to celebrate and carry into the New Year!

Our newsletter that womansplains the week

How This CEO Is Using Your Period To Prevent Chronic Diseases

With so many groundbreaking medical advances being revealed to the world every single day, you would imagine there would be some advancement on the plethora of many female-prevalent diseases (think female cancers, Alzheimer's, depression, heart conditions etc.) that women are fighting every single day.

For Anna Villarreal and her team, there frankly wasn't enough being done. In turn, she developed a method that diagnoses these diseases earlier than traditional methods, using a pretty untraditional method in itself: through your menstrual blood.

Getting from point A to point B wasn't so easy though. Villarreal was battling a disease herself and through that experience. “I wondered if there was a way to test menstrual blood for female specific diseases," she says. "Perhaps my situation could have been prevented or at least better managed. This led me to begin researching menstrual blood as a diagnostic source. For reasons the scientific and medical community do not fully understand, certain diseases impact women differently than men. The research shows that clinical trials have a disproportionate focus on male research subjects despite clear evidence that many diseases impact more women than men."

There's also no denying that gap in women's healthcare in clinical research involving female subjects - which is exactly what inspired Villarreal to launch her company, LifeStory Health. She says that, “with my personal experience everything was brought full circle."

“There is a challenge and a need in the medical community for more sex-specific research. I believe the omission of females as research subjects is putting women's health at risk and we need to fuel a conversation that will improve women's healthcare.,"

-Anna Villarreal

Her brand new biotech company is committed to changing the women's healthcare market through technology, innovation and vocalization and through extensive research and testing. She is working to develop the first ever, non-invasive, menstrual blood diagnostic and has partnered with a top Boston-area University on research and has won awards from The International Society for Pharmaceutical Engineering and Northeastern University's RISE.

How does it work exactly? Proteins are discovered in menstrual blood that can quickly and easily detect, manage and track diseases in women, resulting in diseases that can be earlier detected, treated and even prevented in the first place. The menstrual blood is easy to collect and since it's a relatively unexplored diagnostic it's honestly a really revolutionary concept, too.

So far, the reactions of this innovative research has been nothing but excitement. “The reactions have been incredibly positive." she shares with SWAAY. “Currently, menstrual blood is discarded as bio waste, but it could carry the potential for new breakthroughs in diagnosis. When I educate women on the lack of female subjects used in research and clinical trials, they are surprised and very excited at the prospect that LifeStory Health may provide a solution and the key to early detection."

To give a doctor's input, and a little bit more of an explanation as to why this really works, Dr. Pat Salber, MD, and Founder of The Doctor Weighs In comments: “researchers have been studying stem cells derived from menstrual blood for more than a decade. Stem cells are cells that have the capability of differentiating into different types of tissues. There are two major types of stem cells, embryonic and adult. Adult stem cells have a more limited differentiation potential, but avoid the ethical issues that have surrounded research with embryonic stem cells. Stem cells from menstrual blood are adult stem cells."

These stem cells are so important when it comes to new findings. “Stem cells serve as the backbone of research in the field of regenerative medicine – the focus which is to grow tissues, such as skin, to repair burn and other types of serious skin wounds.

A certain type of stem cell, known as mesenchymal stem cells (MenSCs) derived from menstrual blood has been found to both grow well in the lab and have the capability to differentiate in various cell types, including skin. In addition to being used to grow tissues, their properties can be studied that will elucidate many different aspects of cell function," Dr. Salber explains.

To show the outpour of support for her efforts and this major girl power research, Villarreal remarks, “women are volunteering their samples happily report the arrival of their periods by giving samples to our lab announcing “de-identified sample number XXX arrived today!" It's a far cry from the stereotype of when “it's that time of the month."

How are these collections being done? “Although it might sound odd to collect menstrual blood, plastic cups have been developed to use in the collection process. This is similar to menstrual products, called menstrual cups, that have been on the market for many years," Dr. Salber says.

Equally shocking and innovative, this might be something that becomes more common practice in the future. And according to Dr. Salber, women may be able to not only use the menstrual blood for early detection, but be able to store the stem cells from it to help treat future diseases. “Companies are working to commercialize the use of menstrual blood stem cells. One company, for example, is offering a patented service to store menstrual blood stem cells for use in tissue generation if the need arises."