Blog & Resources
Growing pains - How fast can your business afford to grow?
Many of the clients that we work with wish to grow their business. Growing a business although very desirable can also place a large amount of pressure on the financial resources.
Your affordable growth rate assumes that you can only grow as fast as your assets do.
To fund a business’s growth a certain amount of assets are required. That is a certain level of receivables, inventory, WIP, fixed assets are required for each dollar of sales generated.
The formula for affordable growth is:
(Net Profit – Dividends) / Tangible Equity.
For example, last year your business achieved the following results:
Net Profit of $500,000
Pays dividends of $100,000
Has a Tangible Equity Position of $2,000,000
The Affordable Growth Rate is 20%
If the business wishes to grow any faster the it will need to issue more shares / units.
If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
Phone +61 3 9428 1062
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