Why does growth so often get stuck on finances?

Many companies reach a point where there is demand, the team is good and the product works, yet growth stalls. The reason is often not sales or marketing but finances: money, systems and management information cannot keep up with the company’s growth.

Below are the five most common reasons why growth gets stuck on finances.

1. Growth needs money before it brings money in

New orders often mean materials, inventory, salaries and prepayments to suppliers before the client has paid. The faster the company grows, the more money is “in transit”. Without a cash flow forecast, this comes as a surprise just when everything seems to be going well.

2. Prices don’t cover the costs of growth

If prices were set when the company was smaller, they may not cover the new costs: management, software, an office and another employee. Sales grow, profit doesn’t. Profitability by product, client or project shows where prices need to be reviewed.

3. Management information falls behind

A growing company has more products, clients and projects, sometimes also more companies and countries. If the accounts only show the result for the company as a whole six weeks later, the owner cannot see where growth is actually making money.

4. The bank and investors ask for numbers that don’t exist

To finance growth, the bank asks for a forecast, an investor asks for a financial model, and both want to see that the company’s numbers can be trusted. If these have to be put together at the last minute, the financing is delayed or doesn’t happen at all.

5. All financial decisions are in the owner’s head

At the start this makes sense. As the company grows, however, the owner becomes a bottleneck: every quote, payment and investment waits for their time. The more decisions rely on clear numbers and agreed rules, the less growth depends on one person.

Two stories from our clients

Reverse Resources: from a Zaporozhets to a Lamborghini, on the move

Reverse Resources quickly grew international: a head office in Estonia, companies in Bangladesh and India, three business lines and many stakeholders. Ann Runnel and one of her team members have said they have been trying to rebuild a Zaporozhets into a Lamborghini while still driving it. Ann describes the earlier situation as finances trailing behind the company’s development. Working with KL Raamatupidamine, the systems of three countries and the business lines were brought together into one set of management information in three months.

Now we can do it.

Ann Runnel, founder and CEO of Reverse Resources (read the full story)

Renoproff: time for the core business

Renoproff repairs heating and ventilation flues in private houses and housing associations. From the very start, the company decided to entrust its accounting to professionals so the owners could focus on developing their business.

The most useful thing is that we don’t have to deal with the intricacies of accounting ourselves. We need answers to our questions about how and what to do, and we get advice quickly.

Janno Rebane, Renoproff OÜ

How finances can keep up with growth

• A solid foundation. Monthly accountingthat is ready on time and can be trusted.
• Management information every month. Financial controlling provides a management report, budget vs actual comparison and KPIs.
• Cash flow forecast and financial model. Part-time CFO helps you plan growth, talk to the bank and prepare the numbers investors want to see.
• Systems that reduce manual work. Software and integrations make the bank, e-shop, inventory and accounting work together.
• Several companies? See how we keep a group’s accounting in one place.

If you are not sure where to start, business controlling shows in a written action plan where growth is getting stuck the most right now.

Signs that growth is starting to outpace your finances

• Revenue is growing, but the money in the account is not.
• You have to wait for a client to pay before you can make payments.
• The monthly result is known only six weeks later.
• The bank or an investor asks for a forecast and preparing it takes weeks.
• The same information is entered manually into several programs.
• All payments and quotes wait for the owner’s approval.

If you recognised two or more, it is the right time to prepare your finances for growth rather than wait until growth stops by itself.

How to finance growth

Growth can be financed in several ways, each with its own cost and risk:

• Own cash flow. The cheapest option, but growth is slower. It requires good pricing and fast collection of payments.
• Overdraft facility. A flexible short-term buffer for seasonality and late payments, not for long-term investments.
• Bank loan or leasing. Suitable for equipment, vehicles and other long-term investments. The bank wants to see reliable reports and a forecast.
• Investor. Brings money and experience, but part of the company and decision-making power goes with it. Requires a financial model and regular reporting.
• Grants and project funding. Can cover part of the development, but require accurate reporting and own co-financing.

The right choice depends on what the money is needed for, how quickly it will be earned back and how much risk you are willing to take. This can be calculated by a CFO.

Frequently asked questions

Summary

Growth doesn’t get stuck because the owner lacks ambition. It usually gets stuck because the money, systems and numbers were built for a smaller company. When finances move at the same pace as growth, the owner can focus on where to go next.