In a new business, the first flush of success is very exciting. When sales start to increase and opportunities begin to emerge on the horizon, it is natural for the business owner to start thinking of expansion. However, unplanned growth, especially if it is rapid, can seriously destabilise your business.
You can avoid the pitfall of growing pains and getting in over your head by approaching the development of your business strategically.
Of course, every business owner wants their enterprise to grow, but bear in mind the following:
Keep an unwavering eye on the overheads – An expanding business has expanding overheads. But you have been used to operating with a low overhead structure. You have to keep close track of the costs of growth – you can’t be too busy to have a full grasp of your increased spend. As the scale of your operations increase, you need to be able to cover more transport and inventory costs, a heftier payroll and more regulatory fees, as well as bigger rentals on storage or even office space.
Don’t assume your margins will stay the same – You might expect that your increased sales will return the same profit margin, or expect even better. But this is not necessarily the case. Even if the costs of materials are going down because you are buying in greater quantities and your overheads are spread over more sales income, expansion often comes along with unexpected costs that can slash margins. You need to keep attuned to profit margin analysis that can inform you if you are actually expanding or running more quickly on the same spot.
Grow your team strategically – More business means hiring more people. But before you start interviewing you need to think about a range of impacts. Firstly, an influx of new employees can suddenly change the dynamics of the core team that brought you your first success. Secondly, new employees represent a significant jump in overhead costs contributing not just to greater salary costs but employee benefit investment too. To pace your growth, you can first consider appropriately increasing the responsibility and scope of existing team members before you hire. You can also see whether some of the new or expanded tasks can be handled by temps, freelancers or interns. If the best way is to recruit, then focus on getting the right person to not only execute tasks but also fit your team.
Go wisely into debt – For most small business owners, expanding generally means seeking loans. You are caught up in a wave of optimism, but you can’t afford to not consider that things can still go wrong. You do not want to end up in the red with a bad credit record. So, choose your lenders wisely and ensure that they are accredited and a cost-effective source for you. When submitting for funding, keep your feet on the ground and make sure your projected income and expenditure is realistic.
Maintain your customer focus – Small businesses are most often, good at customer service and this is a driver of success. Too often, though, customer service is one of the first things to go by the wayside when a business decides to expand. Make sure that you and your team have an unwavering focus on delivering the customer service that has powered your growth. If your expansion compromises delivering value for your customers, your outlook is bleak.
Keep your cash flowing – Rapid expansion typically demands significant investment to produce new orders that perhaps won’t result in immediate cash. Poor management of cash flow during an expansion phase is a major cause of small business failure. You need to build strong cash flow during a rapid growth phase to ensure your survival.
Embrace that everything is different – As leader of your business you need the foresight to understand the changes you are going through on all fronts. Sometimes, expansion results in the leaving of a partner or a co-founder. Sometimes, it shakes up your team, which was on a winning path. Sometimes, it can’t be helped that loyal suppliers who supported your early success fall by the wayside. You need to be conscious of these changes and manage the impacts appropriately.
Entrepreneurs start businesses with the aim of growing. There are challenges to this. It’s important to remember that businesses don’t fail because of growing, but they can frequently fail because that growth wasn’t properly managed and directed. Grow your business by all means – but according to plan.
(Photo credit: waiting-to-grow_flickr_s-khan-photography)