How to grow your SME with a sensible cash-flow forecast

For most small and medium-sized enterprises (SMEs), borrowing money is the go-to strategy for funding their growth plans. But relying solely on traditional loans from the big banks can cause serious financial strain in an uncertain economy, and could even result in insolvency. So how exactly can business owners grow sustainably without compromising their financial health? It could be as simple as looking to more innovative financing solutions.

The pitfalls of debt-driven growth

Debt-driven growth isn’t without its merits — but it also comes with inherent risks, particularly in a volatile economic environment like we are experiencing right now. As businesses borrow to finance their expansion plans, they often find themselves grappling with greater financial pressures and the looming risk of insolvency.

“One of the biggest problems with debt-driven growth is that we don’t know what’s around the corner,” says Mark Occhiuto, Sales Director at Fifo Capital. “If you’re basically making decisions for the next two or three months, and you’re borrowing finance, and you’re leveraging yourself and bringing on debt, then there’s no real structure to that. You could very easily find yourself down the line where you’re treading water and there’s just too much debt around your neck.”

Locking yourself into long-term loans at high interest rates is something Occhiuto says is far too common — restricting your future growth opportunities when more affordable funding options are out there.

“The biggest risk you’ve got when taking on loans that are fixed is that when interest rates do drop off, then you’re stuck paying heavy finance. You can always consolidate later on, but it’s going to impede your growth.”

Why payables finance can be a better solution

For SMEs looking to grow without taking on extra debt, payables finance is a smart alternative. Think of it as a financing tool that will let your business manage supplier payments, maintain liquidity and avoid the pitfalls of traditional bank loans.

It also lets you buy what you need today and pay later, all while maintaining flexibility in your cash flow. Having a structured approach means you can scale without the long-term burden of debt. Unlike conventional loans, which can linger on your balance sheet, payables finance ties directly to specific transactions, so your business only makes repayments once you’ve completed the relevant sale.

“It disciplines you,” says Occhiuto. “You’ve sold your product, you’ve paid off your debt and then you’re left with the profit.”

Managing growth with financial flexibility

As businesses scale up, managing cash flow tends to become more complex, but payables finance can help smooth out those wrinkles. Giving you flexibility in payment terms means SMEs can better control their cash flow while expanding.

“Cash flow constraints are directly linked to growing your business,” says Occhiuto. “The more you grow, you still have to pay out something before you get what’s coming in — it’s just more.”

Payables finance can help you manage that gap so you’re never overextended. But cash flow management is just as — if not even more — important to keeping your SME sustainable during growth phases. Rather than relying on loans, which can put pressure on your finances, perfecting your cash flow management can feed into long-term success.

“You know the old saying: ‘Revenue is vanity, profit is sanity but cash is king’,” says Occhiuto. “The SMEs that fail in their first few years mostly do so because of cash flow problems, not because they don’t have enough revenue. It’s a problem that grows exponentially as you grow your business.”

He advises that by forecasting your cash flow and negotiating payment terms with suppliers and clients, you can help make sure your SME’s growth doesn’t outpace your ability to manage expenses.

Tailored financial solutions for growth

Fifo Capital has a range of financial solutions that have helped countless SMEs grow without taking on large amounts of debt. From invoice financing to payables finance and beyond, there are plenty of smart tools out there to help you manage cash flow. Imagine being able to pay suppliers later or get paid earlier without straining relationships with your clients and vendors.

“Once SMEs understand the value of these solutions, they often wonder why they didn’t bother doing it in the first place,” says Occhiuto.

But he adds that borrowing isn’t the only path to growth for SMEs. Payables finance and other financing solutions can — and do — pave a pathway to scale sustainably without sacrificing financial health. However, cash flow management should always be front-and-centre.