How to expand through cash flow

Are you looking to grow your small business but not keen on the idea of borrowing? Expanding your business without borrowing may sound impossible, but it's not - the answer is simpler than you think if you look to your cash flow.

Effective cash flow is essential to the survival of a business and has a direct impact on its earning potential, according to Small Business NSW, confirming the notion that 'cash is king' in business, particularly among SMEs.

Inevitably, the first step in planning your expansion should be to look into your business's cash flow cycle and comparing the cost of supplies, services and products sold against payments from customers.

Of course, assessing your current cash flow is easier than capitalising it. Below are six key tips to promote the growth of your business through cash flow:

  • Expand through profits
  • Increase income
  • Reduce costs and streamline operations
  • Team up
  • Consider Leasing
  • Contact an expert

Expand through profits

By performing an assessment of your cash flow, you are also able to identify fast and slow moving products, allowing you to allocate profits to lines that have proven to be profitable.

This in turn allows you to capitalise on well-performing product lines before taking risks with the introduction of new ones.

Another way of expanding operations without resorting to extensive financing is to establish e-commerce facilities and a website, which is fraction of the cost of taking out a loan. Australia's primary business website,, suggests that going online is a much more effective way of opening your business to a wider customer base in comparison to the establishment of an additional site or store, which does not have the ability to cater to such a diverse customer base.

Increase income

Queensland Business recommends pricing or income fee reviews as a good way of increasing income in small businesses. However, this is usually only effective when price increases are minimal, as extreme price increases can result in the loss of customers. Similarly, radical price cuts can hurt your profit margin.

Another option is to offer complementary products that naturally fall in line with your current portfolio, or invest in advertising initiatives to grow customer knowledge of and appeal to the company. South Australia's Business, Industry and Trade department also suggest increasing the proportion of cash sales as well as tightening payment policies. This can include diligently pursuing overdue payments and rewarding customers who pay early.

Reduce costs and streamline operations

While the need to cut costs often raises alarm bells among SMEs, it has the potential of significantly increasing a small business's access to cash flow. Simple initiatives such as shopping around for suppliers and assessing overhead expenses can make a big difference in freeing up cash flow.

Team up

Forming a market or product alliance with another business allows you to mutually build awareness and interest in both businesses' services and product mix. This in turn opens up access to a larger market and each other's customer base.

As you will have the opportunity to share revenue and associated production and distribution costs, this will subsequently cut advertising and marketing costs as well.

Consider leasing

The leasing of equipment and facilities with expanded operations is a great option for businesses that want to accommodate their operational needs without the need for extensive applications, loans and down payments.

According to South Australia's Business, Industry and Trade department, taking out a lease generally only requires an advanced payment or small deposit and a short credit application.

Leasing is not only an effective method of utilising cash flows to capitalise on new equipment and resources without incurring loan debt, but it also maintains the company's borrowing power in the future.

Leasing also combats equipment obsolescence - instead of repaying out-of-date equipment, lease contracts allow businesses to have constant access to new technologies at a sustainable cost.

Contact an expert

If your financial skills aren't quite up to scratch, Queensland Government's Business department recommends getting expert advice, such as a professional accountant or financial adviser. Often, getting a second perspective, particularly from an expert, can shed fresh light on your cash flow situation and growth opportunities.

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