Quick answer
Growth consumes cash before it produces it. More sales mean more stock, more staff and more unpaid invoices, all paid for before the new revenue lands. Calculate the extra working capital each new dollar of sales requires, then fund the difference with a cash line, working capital loan or property-backed facility, with repayments timed to when customers pay.
Key points
- Growth soaks up cash ahead of profit.
- Each extra dollar of sales needs extra working capital.
- Slow-paying new customers widen the gap.
- Fund growth in steps rather than one gulp.
- Core problem
- Costs first, cash later
- Unsecured
- Typically $5k – $500k
- Best fit
- Cash line or working capital loan
- Check
- Can customers' payment keep up?
Few things feel as odd as being busier than ever and more cash-strapped than ever at the same time. Orders are up. The team is stretched. The bank balance, meanwhile, has never looked thinner. This is the growth gap, and it catches out some of the most promising businesses around.
Why growth drains cash
Every new sale starts with spending. You buy the materials, pay the people and cover the overheads. Then you invoice, wait, and eventually collect. Growth stretches that sequence, because each step is bigger.
| Growth effect | Cash consequence |
|---|---|
| More stock needed | Suppliers paid before shelves empty |
| Extra staff | Wages begin before the extra revenue does |
| Bigger invoices | More money owed to you, for longer |
| New equipment or space | Large outlays up front |
| Higher GST collected and owed | A larger return to fund |
Profit looks good on paper, and it is real, but it sits in debtors and stock instead of the bank. Our guide on profitable but no cash explains where it hides.
Estimating your growth gap
A back-of-the-envelope method:
- Find your cash cycle in days. Days from paying for stock and labour to collecting from customers. Say 60.
- Find your daily operating spend. If monthly costs are $90k, that’s about $3,000 a day.
- Multiply. 60 × $3,000 = $180,000 of working capital tied up at any time.
- Now test growth. If sales and costs rise by a third, you need roughly another $60,000.
That extra sum is the growth gap. The cash gap calculator will model your actual dates.
Orders up and cash down? Start the 60-second enquiry.
What makes it worse
- Slow-paying new customers. Large clients often insist on 45- or 60-day terms.
- Lumpy timing. A big order paid in one hit months later.
- Pre-paying suppliers who don’t know you yet.
- Hiring ahead of revenue.
- Paying tax on profit you haven’t received in cash.
Funding growth sensibly
A standby cash line
Growth fluctuates, so a facility that expands and contracts with usage is a natural fit. Draw for each stock purchase or pay run, repay as invoices clear. See the business cash line.
A working capital loan
For a defined jump, such as a new contract, a lump sum sized on the gap may be simpler. See the working capital loan.
Property-backed money
For leaps larger than takings can carry, equity extends the ceiling, from $20k to $5m. See property-backed cash.
Funding in steps
Rather than one big facility, many owners stage it: a first tranche for the first phase, then more once results come in. It limits exposure.
Protect against over-trading
Over-trading means taking on more work than your cash can support. Warning signs:
- You’re paying suppliers later each month
- The overdraft or line is always near its limit
- You dread opening the bank app
- Margins look healthy but the account does not
If this sounds familiar, pause and run the numbers before accepting the next big order.
Questions to ask before saying yes to growth
- How much cash does this order or contract absorb, and for how long?
- When does the customer actually pay?
- What happens to our cash if they pay a month late?
- Is the funding in place before we commit?
For the specific case of a new contract, read new contract start-up cash and the stock page.
Early warning signs to watch
A few indicators tell you the gap is opening before the bank does. Debtor days creep upward month after month. Stock is rising faster than sales. You begin paying suppliers on the last possible day. Overtime keeps increasing but the account does not. Any one of these deserves attention, and two together mean it is time to forecast. Track the numbers monthly in a simple table and look at the trend rather than a single month. Catching the pattern early costs a little time; catching it late costs relationships with suppliers and staff.
An illustrative example
Illustrative only. A Hamilton commercial laundry wins a hotel chain contract that adds 40% to its volume. The hotels pay on 45 days, while the laundry pays staff weekly and suppliers on 20. The extra cycle needs about $85k of working capital. A standby line sized to that figure lets the laundry say yes, and as hotel payments arrive the line is repaid and redrawn each month.
Grow without gasping
Growth should feel good. If yours doesn’t, the gap may just need measuring and funding. The enquiry takes about a minute, asking involves no credit check, and your details stay with one team. A real person calls you back.
Accurate figures on current turnover, expected growth and customer terms let us suggest funding that expands as you do.
Frequently asked questions
Why does a growing business feel short of money?
Because it pays for more stock, wages and supplies before the extra sales are collected. The profit is real, but it shows up on a delay.
How do I estimate the growth gap?
Work out how many days it takes between paying for goods and labour and being paid, and multiply by the extra daily spend that growth requires.
Should I slow down?
Not necessarily. Pace growth to funding. Taking on a large customer you cannot afford to supply is riskier than a slower start.
What funding suits growth best?
A standby cash line, because it grows with usage, or a working capital loan for a defined jump. Larger leaps can use property equity.