How much cash do I need to grow my business? While this seems like a simple question, it is certainly not one that should be taken lightly.
All too often I see entrepreneurs “shoot from the hip” in trying to answer this question, and the outcomes are usually unfavorable.
The best advice that I can offer is to take the time to do/consider the 3 following things:
- Prepare a detailed financial model that isolates the key drivers or variables for your business.
- Run a sensitivity analysis by changing underlying assumptions, in order to help you better understand the range of possibilities for the cash requirements of the business.
- Remember that financial modeling is not an exact science.
There are a number of factors that come into play for any business. For example, the revenue forecast, staffing plan or capital expenditure needs of the business can be very important elements in your financial model. The better you understand the key factors for your business and how they impact cash flow, the more prepared you will be to manage your growth.The next big question is how do I allocate this cash to grow my business?