- December 10, 2019
- Posted by: Paul Foster
- Category: Business investment planning, Entrepreneurial advice, Grow a Business, Managing business revenue
There can be a tendency to celebrate short term business success too soon.
Let’s say your business has a good month and you make a nice profit. Should you take a bonus? Should you reward yourself right away?
Instant or deferred gratification?
There is a philosophy out there that says to wait – to defer to the future. This is based on the assumption that when a business does well in the short term, it doesn’t actually create extra cash. Instead it actually uses more.
If you get more sales, it could result in higher accounts receivable because your new accounts will take time to pay the bill. There will also be the time from selling the job to completing the job. Employee salaries to complete the job need to be paid before the job is done and billed.
If the business has to grow in capacity to do more work, it could require hiring and training more people, stocking higher inventory levels and buying more equipment.
Basically a successful growth spurt for a company uses more cash. This is why, as an advisor to businesses, I am a proponent of deferred gratification. Deferred gratification is the necessary willpower to be able to manage the cash requirements of the growth.
Don’t worry though; you are reinvested in the best place. Although it never happens as fast as you would like, when your business does start to produce excess cashflow, the deferred gratification will last much longer than an instant.