A financial lesson from the world’s most dangerous motorcycle race

Why rapid growth could be your business’s biggest danger.

If you’ve been busy following Rishi and Kier, you’ve probably missed the really big news last week…

Michael Dunlop won his 29th victory at the Isle of Man TT, the world-famous – and world’s most dangerous – motorcycle racing competition.  This makes him the all-time champion at the event, breaking the record set 24 years earlier by his own uncle Joey.

Now, I know what you’re probably thinking. You know I’m interested in steam engines. Could I really be interested in motorcycles as well?

And the answer is, kind of – once a year.

You see, TT feels a little personal to us here at Insight Associates, because our Associate Director Shirley Hoy acts as a marshal. So we get an unusual and always fascinating insider’s account of the entire event.

One of the details Shirley has shared with us is that during the TT week, when roads are open to the public, there is no speed limit over the mountain section of the course.

Amateurs are allowed to race as fast as they like around “the mountain” both in motorcycles and cars. And many get over-confident and go beyond their capabilities – with disastrous results.

“If there is a sign saying, “Mountain closed,” it is generally because people have gone too fast and had an accident,” says Shirley. “It happens frequently. A couple of years ago, someone even flew off the side of the mountain in a Porsche.”

It’s not just motorcyclists who fall into this trap…

Business owners often find themselves in a similar situation.

When business is booming, it can be tempting to accelerate growth, just like those motorcyclists who believe they are in complete control and decide to speed up. However, this is precisely when caution is most crucial.

The moment when your business is growing rapidly is actually one of the most dangerous.

To sustain that growth, you might need to invest heavily – hiring more staff, increasing your inventory, or expanding your premises. These necessary investments can tie up significant amounts of cash.

Unfortunately, sometimes the anticipated revenue doesn’t materialise as quickly as expected, leading to financial distress.

Time and again, we’ve seen business owners face their greatest financial challenges right after a period of significant growth. They believed they were breaking barriers, only to find themselves in a financial crisis.

The lesson here, much like for the motorcyclists, is to understand your capabilities and manage your growth carefully. Just as a skilled rider navigates the twists and turns of a mountain road with precision and caution, you must steer your business growth with careful planning and financial prudence.

The key is to keep a close eye on your cash flow, monitoring the money coming in and going out to ensure you don’t run out of funds…

…and trying to get as much warning as possible if this scenario suddenly becomes realistic.

Knowing that you’re making more sales or even that you’re profitable is not enough. Neither of those necessarily translate into money in your bank account. If your clients take too long to pay you or you have huge expenses, you can still easily run out of cash.

You need to understand how the money is ebbing and flowing through your business, so you can forecast the moments when you might run low on cash; know when you can spend money responsibly, without endangering your future; and make better financial decisions.

That’s where Insight Associates can help you.

Monitoring your cashflow is a key part of our outsourced financial management service.

We work closely with our clients to help them understand what their cash situation is liable to look like over the coming weeks (or more accurately, over the course of their cash cycle – check out my last email for more detail!).

Then we check their bank balance every single day, to make sure that what we predicted was going to happen actually is happening – and update our forecasts accordingly.

This process gives you a very good idea of what’s coming over the horizon, as far as your cash is concerned. It drastically reduces the likelihood of a nasty surprise. And it allows you to take mitigating actions, if you can see that there’s cash trouble ahead, so you can put on the breaks if necessary – and prevent a crash.

Does that kind of hands-on financial management sounds useful? If so, why not book a no-obligation consultation with us today. We’ll discuss your current financial management and what your gaps are. We’ll also tell you a lot more about how we work.

If there’s a potential match, we can take the conversation further. And if not, we’ll still leave you with valuable advice on how to improve your financial management.

Warmly,

Garry

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In this blog archive our Managing Director, Garry Mumford simplifies all things financial and shares with us a lifetime of practical financial business advice.

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