I’m frequently called in to resolve crises caused by poor growth planning. Business explodes, yet the business is struggling with inadequate cash reserves. There’s demand for their product. However, the cash bottleneck is killing the business before they can produce it. This is why I encourage the businesses I work with to craft their business plan so the cash shortages that growth often produces are built into their expansion strategy.
Consider These Factors.
We may all love a smooth ride, where you barely feel the road; however, your customers are more likely to be like a driver who alternates between putting on the gas and hitting the brake pedal. Often, business growth feels like you’re lurching toward your goal. As a consequence, you need to recognize where the cash flow pinches are likely to come from and plan for them.
Service businesses are especially difficult to scale up. To meet an increased demand for your service, you hire qualified individuals. Then, whether or not you’ve collected payment from your customer, you have an obligation to pay your new hires. Demand drops, and you have to lay off employees—increasing unemployment benefits costs. This is just one scenario where planning ahead can keep your business financial stable.
Even product-focused companies can find themselves in trouble when growth occurs quickly. The existing supply chain may not have the materials to support increased production. Expanding your facilities may create a whole new set of expenses. Often costs of growth, such as moving expenses, are overlooked or minimized. Capital purchases quickly swallow up cash reserves or require financing. No one planned for the loss of your most important customer, and suddenly, manageable debt becomes the bitter threat of bankruptcy.
A product may be easier to scale up in volume if it’s technology-based. However, even technology has a volatile side. When software sales’ volumes go up, the staff needed to provide support grows as well. Call-center functionality becomes essential, accompanied by equipment fees in addition to employee benefits. In addition, you may find yourself in a pinch between income coming in from sales and expenses going out for employees and training.
You Must Prepare for Successful Growth.
It’s easy to focus on growing revenue, while ignoring the signs growth is pinching your profits. Unless you have a plan in place to cover irregular demands for your product(s) or service(s), you may find your business is spending more money to make money than it can sustain. This is unfortunate, because planning for successful growth is far easier than most businesses realize. It begins with having an expert evaluate your business model.
Identify How to Grow.
- Determine what scale of growth is best for your business.
- Detect flaws in your business model that could become issues if you grow rapidly.
- Perform a company-wide audit to detect anything in management, production, development and especially accounting that would become issues as the company grows. Small concerns rarely shrink with growth.
- Assess how much debt your business can afford to accept without hurting your long-term business viability.
- Develop a plan where the costs of asset expansion are anticipated.
Growth should be great news for your company. By planning for it and factoring in the pressure points growth can produce, your business plan can anticipate your needs, so the money for expanding your business flows at the times you most need it.