The Danger Zone in business occurs when "the cash needs of the company greatly exceed cash availability." Although cash flow problems can occur at any point in the business cycle, there are predictable problems at each phase of the cycle which can slow the growth of a company. By anticipating some of these problems, corrective action can be taken to minimize their impact on the company. For example:

Business Development Cycle 

• Initialization Phase. This is usually the start-up phase of the business when the initial direction of the business is determined. Typically, business problems focus on survival, such as:
  • Running out of cash
  • Making a fatal mistake
  • Dealing with personal problems

Solutions to these problems often focus on operating procedures:

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  • Tracking cash flow before profits.
  • Staying within the budgetary limits.
  • Maintaining the operational control.
• Expansion Phase. This is the growth phase of the business when employees are trained to do the right things, at the right time, for the right reasons. Typically, business problems focus on managing resources, such as:
  • Spreading the Founder too thin.
  • Running out of cash.
    
  • Relying too heavily on debt.

Solutions to these problems focus on management experience:

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  • Track cash flow before profits.
  • Stay focused on the core values.
  • Strengthen flow of funds through the company.

• Stabilization Phase. This is the maintenance phase of the business when business decisions are made proactively rather than reactively. Typically, business problems focus on professional management, such as:
  • Lack of internal controls.
  • Failing to delegate responsibilities.
  • Accurate management information.

Solutions to these problems generally focus on profitability:

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  • Developing business partnerships.
  • Requiring “outside the box” thinking.
  • Strengthen the business organization.

The key to structuring the company for growth involves the entrepreneur staying within their core competencies and delegating business responsibilities to employees, associates and professional advisors. Companies that do not plan for growth, prepare for failure.