Growing your business sustainably to ensure long term success is a challenge. Grow too fast and you risk running out of money but start turning away work and you may lose valuable clients to competitors.

Start with Company health check

When should you start to worry about overtrading? The following questions may help:

1. Have your profit margins dropped over the last 12 months?

2. Has there been a large rise in the number of companies you are invoicing?

3. Does any one company represent more than 25% of your outstanding invoices?

4. Are your customers taking longer to pay than 12 months ago?

5. Are your struggling each month to meet your fixed overheads?

6. Would your bank turn down your request for a larger overdraft?

7. Have you increased your workforce to help meet new orders?

8. Is your turnover increasing while your profit stays the same (or falls)?

9. Have you purchased new plant or equipment recently?

10. Has there been a sharp rise in your variable costs (labour, material)?

If you can say yes to three of more of these ten tell-tale signs of overtrading then you need to reassess and put in place sensible measures to ensure your cash does not dry up.

Managing growth

The key to successful growth is managing your cash flow and ensuring you always have access to sufficient capital, which, since the recession, has been increasingly difficult to access via the traditional high street banks.

Happily for SMEs, the funding marketplace is evolving to offer a variety of new financial vehicles that can help finance growth.

The new financial vehicles such as cash flow funding, crowdfunding, peer to peer lending, angel investment and asset finance, now lend more to SMEs than clearing banks lend on overdraft.

Many of them have chosen to specialise and target specific sectors or business models so SMEs now have greater choice than ever in how they finance growth.

But before you borrow money or invest in growth you should ensure you have the basic checks in place to understand and control your cash flow – and avoid answering yes to any of the questions above. This way you can seek out the amount and type of funding best suited to your company’s needs.

Make sure you’re maintaining a consistent bottom-line profit

A business should ensure it has recorded steady growth over a prolonged period of a few years before investing heavily in growth, whether that is in the form of staff, equipment, office space or more.

Draw up a cash flow forecast to ensure the business is secure 

SMEs may wish to delay or scale back growth if they find themselves reliant on the punctual payment of just one customer or if their supplier’s credit terms are stricter than their own meaning they are paying out money faster than they receive it. Any responsible business owner should ensure there is always some cash to fall back on.

Look at market trends

Business owners should keep an eye on both economic and consumer market trends for indications of their company’s staying power. This will also help them identify new markets which could support growth

Maintain strict record-keeping to ensure the cash keeps flowing

Payment should be chased quickly and efficiently. Businesses should issue invoices as soon as possible and bank any cash or cheques the moment they arrive. It is worth offering discounts for timely payment and allowing customers to pay by BACS. SMEs should charge interest on overdue payment where possible.

Monitor customer behaviour

SMEs should ensure proper credit checks and due diligence is followed when entering any important deal. Where customers prove to be reliable and timely payers, businesses can consider ways to increase income from them. When customers are consistently late with payment business should look at ways to minimise dealings with them.

Consider how you are going to grow

Do you need more staff? New and more advanced equipment? A new office? Business owners must consider the logistics of growth and what they will need to put in place to support it as this will have a major impact on the amount and type of lending they need.

Chose a lender which suits your business needs

SME owners should hunt around and find a lender that suits their needs. While only eight per cent of firms received advice from their bank in 2014, according to government research, many of the new style lenders offer much more than simply funding.

They want to develop profitable long term partnerships with SMEs, offering business advice, support and help with financial management. Businesses that enter into a mentoring partnership with a finance provider are twice as likely to survive beyond five years, according to the Federation of Small Businesses.

Don’t lose sight of your original business aims

SME owners should be confident they can carry out incoming work to the usual high standards before they agree to it, otherwise their reputation will be tarnished in the longer term. While winning new business is vital, staying focused on output and performance is equally important.

HH Cashflow Finance Limited is part of Henry Howard Finance Group:

Henry Howard Finance Group is run by entrepreneurs for entrepreneurs and business owners and provides a range of financial solutions to SMEs to enable commercial growth and expansion.

See also: The dangers of unplanned growth