What Your Growing Business May Need
Gail Doby | July 25, 2018
Congratulations! Your business is thriving. You’ve got several projects in the pipeline and a list of likely prospects. Maybe you’re thinking now is the time to move out of that spare bedroom and into a real office space. Or you’re overloaded with work and are considering hiring your first employee. Would either help your business to grow, or would such a move put a strain on your finances?
With a bit of cash flow, planning and forecasting you can determine the answer to that question. Because demand for interior design services tends to be seasonal, you likely experience certain times of the year when you are bringing in more revenue than at other times. Similarly with projects, you are invoicing at certain phases and have to wait for clients to pay. On the other side of the balance sheet, you may have some expenses which are annual, some which are quarterly, and some which are monthly. You need to be sure to have cash on hand when those payments are due.
Assuming you’ve been in business long enough to have established a history of previous years of cash flow, you can use that data as a baseline to develop a monthly cash flow forecast for the coming 12 months. Realistically, how many projects do you expect to complete (it’s okay to plan for growth, but not too aggressively)? When do you anticipate you will be paid for those projects? What bills and other debts will you have to pay and when? Be sure to include payments to yourself and your desired profit margin. Lay out your incoming revenues and outgoing expenses month by month to get a clear picture of your cash flow estimate. Will the months where you have a surplus be sufficient to cover those where revenues may drop but expenses will be higher?
Again, I’m going to assume you’ve done your homework and have a ballpark figure in mind for what it will cost to lease and equip a suitable office space or to pay the salary, taxes and benefits for an employee. Do you have enough latitude in your cash flow projection to cover these additional costs?
Before you decide, you also need to take into account how a better office or an employee can add revenue to your business that can offset the expense. You may be surprised to learn that by setting aside just two hours of billable time a week, you can cover the cost of hiring an employee. If you are hiring another designer, factor in how much billable time that person will add, plus additional time you will have in your schedule to bill more hours. Potentially, you will be able to take on more projects as well. Likewise, having a more professional office can help you to be more organized and efficient, thus freeing up time currently spent on administrative tasks for more billable hours.
On the other hand, if your current cash flow projections are not adequate to cover those costs, consider other options, such as outsourcing and renting co-working space, until you grow your business to the point where you can safely assume the additional expenses. The lion’s share of small businesses fail because of cash flow problems, so it pays to be cautious and track your actual cash flow monthly.