Companies in the growth stage are in a position to capitalize on new opportunities, but they’re also vulnerable to changing market conditions. Financial management (and mismanagement) at this point can lead to effects that continue to resonate long-term.
Having a solid financial plan is one of the best ways to get through growth-stage challenges and achieve profitability. Engaging in growth planning gives you a clear vision and concrete strategies to help you fulfill it.
Whether your strategies include securing funding or optimizing cash flow and customer acquisition costs, growth-stage companies that prioritize growth planning will be more prepared and better equipped to scale.
We’ll go through some practical steps your team can take right now to improve your growth planning for what’s ahead. By focusing on frequent budget updates, considering debt financing, refining financial projections, and optimizing customer lifetime value (CLV) and acquisition cost (CAC), you’ll have the financial tools your team needs to grow strategically and efficiently.
1. Create a Rolling Budget
Think about how often you currently establish a budget. Is it annually? Every six months? Traditional long-term budgets are often too rigid for the evolving realities of growing companies.
When conditions change, you need to be able to change with them. To overcome the limitations of yearly budgeting, growth-stage companies should consider the benefits of adopting a rolling 12-month budget that gets updated to align with current results and conditions as frequently as every month or every quarter.
A more dynamic approach gives company leadership and your financial team the chance to respond promptly to shifting business needs. As the picture of your overall financial health and stability changes, it’s easier to adjust resource allocation or spot financial risks before they escalate.
In practice, a rolling budget aligns more closely with the realities of a growing company. As new data come in—across sales or operations, for example—your team can make real-time adjustments to your projections. If you notice supply chain costs are suddenly increasing, having a rolling budget in place helps you account for changing expenses right away and keep your finances on track.
A flexible growth planning strategy offers your company the advantage of greater agility, a characteristic that will make you more efficient when overcoming economic uncertainty or seizing opportunities for growth.
2. Consider Debt Financing
For many companies, debt financing can provide a lifeline to growth planning efforts. And it’s becoming an increasingly popular option as access to venture capital becomes more selective. In fact, the number of tech companies actively seeking debt increased by 87% between 2022 and 2023.
With a great alternative to equity financing available, growth-stage companies should evaluate their situation to determine whether debt can be used to support expansion efforts, including scaling operations, hiring new employees, and investing in new technologies.
When considering taking on debt, it’s important to consider the long-term costs. How much will you pay in total compared to the losses you incur when giving up equity?
Next, match your company’s specific growth goals to the types of debt that are best suited to that purpose. Short-term lines of credit can help with day-to-day operations and expenses, while term loans might be more useful for making long-term investments, such as building out new facilities or acquiring equipment.
While debt often comes with its own set of risks, the right deal can drive growth for your company without requiring your founding team to give up more equity. Proper growth planning involves establishing a clear plan for how new funds will be used and repaid, so be sure to weigh the costs of financing with the benefits it brings to your company as part of your broader growth strategy.
3. Develop Financial Models and Predictions
Financial projections can be tricky to navigate. Some elements involve educated guesses based on economic indicators, while others depend on assumptions. With a blend of both, you can ground your assumptions in data and reassess as new information comes out.
Here are some tips to help you get it right:
Revisit Growth Assumptions Regularly: Your company should routinely assess prior growth assumptions based on updated numbers for sales, expenses, and market conditions.
Plan for Multiple Scenarios: For some teams, scenario planning helps prepare for unexpected events. Create financial models that account for a range of possible growth trajectories and include possibilities like economic downturns or market changes.
Adjust for Rising Costs: As your company scales, your operational expenses will, too. Remember to factor in the costs of additional office space or greater production capacity. Without effective growth planning, your company could experience financial strain as growth takes off.
Consider External Factors: Not every factor is within your control. Changes in the economy, inflation, or supply chain disruptions can derail your plans. Think about the impact of these external influences to stay agile.
Parts of forecasting might feel like guesswork, but with it, growth-stage companies can make more informed decisions about their future, track growth more consistently, and ensure that their approach to growth is sustainable.
4. Refine CLV and CAC Models
As you embark on growth planning, two of the most important metrics to watch are Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC). Watching how these numbers change can provide incredibly useful insights into how efficiently you’re growing and whether your customer acquisition strategies are supportable in the long run.
During the growth stage, scaling customer acquisition is one of the most direct ways to hit ambitious targets. While your growth planning should put customer acquisition front and center, it’s also important to confirm that the cost to acquire new customers aligns with their long-term value to the business. If your CAC is too high relative to your CLV, you may be investing too much in less effective channels, which won’t help you increase profitability.
Check in on these numbers to redistribute your marketing spend to the channels generating the greatest returns. Refining both your CLV and CAC metrics will help you reach your goals efficiently and sustainably.
Need expert guidance to support your financial metrics and tracking? 5th Line can help with financial operations.
Final Thoughts
Implementing forward-looking financial strategies is an essential step in growth planning. To prepare your growth-stage company for the challenges and opportunities ahead, we recommend creating a rolling budget, looking into debt financing, updating financial models, and tracking customer acquisition metrics.
Ready to discover how 5th Line can support and guide your growth planning? Get in touch with us to learn more about financial management and growth strategies.