Controlling Expansion

10th February 2015

An interesting situation arose the other morning during one of my coaching sessions. We were looking through their cash flow for the coming year, in a growing business, but one where they are having to be very careful with their costs. A tricky balance trying to increase sales without increasing costs proportionately. They also had outstanding debts and loans which need to be paid off over the next few months, so they had to make provision for these as well.

The problem was that they had set the budget to lose money over the year. Small amounts admittedly for most months, and overall not a huge loss, but enough to make them worse off than they were at the start of the year, especially as this was going to mean that they would not have been able to pay off their debts and loans, and therefore would potentially send the business bust. They said that they were being cautious and on the downside of realistic so that they didn’t make it over optimistic, but I pointed out that there was little point in budgeting for this because it could result in having to close the business.

After much discussion we then looked at ways of raising sales, and if possible reducing costs, or at worst at least holding them constant. We looked at short term reducing their drawings, and went through all the options they could work on. The key thing was that because we had all the figures available, we could do several “what if…..” scenarios on the cash flow template, and see what had to be done to make it work.

So once again it re-stressed the importance of knowing your numbers, and facing up to them, good and bad. Equally well, it showed that if things are looking bad there is no point in budgeting to make things worse. You simply have to work out the best way to make things better.

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