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Managing Growth Along with Market Upheavals

Everyone likes to have an upslope in the growth curve. However, it’s equally important that this growth is judicially financed.

Companies in an economic uptrend and during their growth phase, remain focused on the growth in their top line. All their financial energy is utilised towards the growth i.e., adding on to existing capacity, intensifying distribution channels, and building up inventory. The companies tend to fund their growth by bank debt, debt from NBFCs, and other institutions. Moreover, most of their business accruals also get tied up to finance the growth. All remains well if all the financial parameters behave well as per their expectations. However, given the upheavals in market dynamics and the dependence of companies on the third parties i.e., buyers, sellers, etc., it becomes tricky to manage growth.

Some of the following points could be considered by the companies to minimise setbacks in the growth plans:

1. Use long/ medium-term finance to fund long term assets:

The company should utilise long term/ medium-term debt to fund the fixed assets (like plant & machinery) and other investments that would free up their short term funding and their business accruals to meet up with business exigencies like delay in receipt of receivables, shortened credit period from creditors, the build-up of inventory, delay in regulatory approvals resulting in a temporary slowdown, etc. that would facilitate the maintenance of its growth trajectory.

2. Maintain buffer in working capital facilities:

The working capital facilities available to the company should be a minimum of 1.3x of its peak utilisation which would ensure that its existing working capital facilities can take care of any event that would impact the liquidity position without disrupting the growth.

3. Negotiate a sculpted amortisation profile for loans:

A sculpted amortization profile with heavy repayment during the latter part of the tenor would leave sufficient business accruals at companies’ disposal to fund their growth.

4. Diversify the sales/revenue across buyers

The company should take steps to diversify its sales/revenue that would reduce dependence on large buyers and avoid situations wherein trouble at a large buyer could impact their planned growth.

5. Diversify its purchases

The company should take steps to diversify its purchases that would reduce dependence on large sellers and avoid situations wherein trouble at a large seller could impact their planned growth.

6. Diversify across geographies

The company should take steps to enter new geographies for their sales and purchases to minimise the impact of the economic downtrend faced in a certain geography, which could derail their growth plans.


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