Quick answer
The growth gap is the cash a business needs to fund more stock, staff and unpaid invoices before extra sales turn into cash. The faster you grow, the bigger it gets, even when every sale is profitable. Close it with deposits, tighter terms and supplier credit, and fund the rest with working capital or a cash line sized on your rising turnover.
Key points
- Growth spends cash before it earns it.
- Every extra dollar of sales needs extra dollars of stock and debtors.
- The gap is temporary if each sale is profitable.
- Funding growth is one of the best uses of business cash.
- Cause
- Costs paid before sales are collected
- Typical fix
- Working capital or cash line
- Unsecured
- Typically $5k – $500k
- Bigger growth
- $20k – $5m with property
It should be the good part. Orders are up. The phone’s ringing. You’ve hired two more people. And yet the bank account is lower than it was when things were quiet. Welcome to the growth gap, where success eats cash before it pays you back.
Why does growth drain cash?
Every sale has a cash cycle. You pay for materials, stock or labour first. You deliver. You invoice. The customer pays, eventually. In a steady business, that cycle runs at the same size month after month. When the business grows, each new cycle is bigger than the last, so you’re always paying for this month’s larger costs with last month’s smaller takings.
A simple way to see it:
| Month | Sales made | Cash in (last month’s sales) | Cash out (stock, wages, overheads) | Net cash |
|---|---|---|---|---|
| Steady | $100k | $100k | $95k | +$5k |
| Growth month 1 | $130k | $100k | $120k | –$20k |
| Growth month 2 | $170k | $130k | $155k | –$25k |
| Growth month 3 | $180k | $170k | $165k | +$5k |
Illustrative figures only. In growth months, this month’s bigger costs are paid with last month’s smaller collections. The business is profitable the whole time, but the account shrinks until growth levels off.
What makes the growth gap worse?
- Long customer payment terms. Each extra day adds to the cash you’re carrying.
- Paying suppliers fast. Great for relationships, tough on cash.
- Stock-heavy models. Retail, wholesale and manufacturing feel it most.
- Hiring ahead of revenue. New staff need training before they’re productive.
- A single big new customer. Particularly if they’re slow payers. See new contract start-up cash.
How can you shrink the gap?
business.gov.au’s cash flow tips include collecting payments faster, asking for deposits and negotiating supplier terms. For growth specifically:
- Deposits on large orders. Ask the new customer to share the upfront cost.
- Progress billing. Invoice as milestones are reached, not at the end.
- Supplier credit. Growing businesses are attractive customers; ask for longer terms or higher limits. See our supplier terms guide.
- Check margins first. Growth on thin margins makes the gap bigger and harder to close.
Growing faster than your bank balance? Tell us about the growth and we’ll look at funding it properly.
How do you fund the rest?
- Working capital loan. A lump sum to fund the step-up in stock and staff. See working capital loans.
- Business cash line. Flexible headroom that can rise with turnover. Many lenders review limits as deposits grow. See business cash line.
- Property-backed cash. For a big step change, such as a second site or a large contract.
The key is sizing. Use the cash gap calculator with your expected orders and costs over the next three months. The lowest point is the minimum you need; add a buffer for customers paying later than promised.
Warning signs that it’s not just growth
- Gross margin falling as sales rise
- One customer becoming most of your revenue
- Debtors growing faster than sales
- Needing to borrow even after growth levels off
If you see these, review pricing and terms with your accountant before borrowing more. Our guide to being profitable but cash-poor helps you tell the difference.
How much cash does each extra dollar of sales need?
A rough rule you can work out for your own business: for every extra $1,000 of monthly sales, how much cash do you need to put in before that $1,000 is collected?
- Cost of goods or materials paid upfront per $1,000 of sales.
- Extra wages paid before the customer pays.
- Days between paying costs and collecting cash.
If you pay $600 of costs per $1,000 of sales and wait about 45 days to be paid, each extra $1,000 a month of sales ties up roughly $900 of cash (one and a half months of costs). Grow by $50,000 a month and you may need around $45,000 more working capital, even though every sale is profitable. Figures are illustrative.
That’s the number to plan for. It’s also why talking to a lender before a growth spurt is far easier than during one.
An illustrative example
Illustrative only. A Brisbane craft brewery lands distribution in a new chain of bottle shops. Sales are forecast to rise by half over three months, but the brewery must buy ingredients, cans and labels upfront and the chain pays on 45-day terms. A $150k working capital facility, sized on the brewery’s rising deposits, funds production while the first invoices are outstanding.
Fund the growth you’ve earned
Running out of cash because you’re doing well is frustrating, but it’s one of the best reasons to use business finance. Tell us what’s growing and what it needs. The enquiry takes about a minute and asking won’t affect your credit score. We don’t parcel your details out to a pile of lenders, and a real person looks at your growth plan before calling you.
Please be accurate about current turnover and where it’s heading. It helps us size something that grows with you.
Frequently asked questions
Why does my business have less cash now that sales are higher?
Because growth needs more stock and more staff upfront, and more customers owe you money at any given time. The extra profit arrives later, after the extra costs have been paid.
How do I know growth is the problem and not my margins?
Check the gross margin on your sales. If it's healthy and stable and the business is profitable on paper, but cash keeps falling as sales rise, it's a growth gap. If margins are thin or falling, fix pricing first.
Should I turn down work to protect cash?
Sometimes saying no to a slow-paying, low-margin customer is wise. But turning away profitable work because of a temporary cash gap is often an expensive choice when the gap can be funded.
Will lenders fund a business that's growing fast?
Rising deposits usually help, because cash flow lending is sized on turnover. Expect questions about margins, customer concentration and how the growth will be managed.