In the process of scaling up your business, you’ll arguably face even more pressure than you did starting out. Being aware and prepared, however, can ease the strain.
Starting a business from scratch is one of the most difficult things to do in life. However, scaling up is an altogether different hurdle. When you’re making the switch from a small to a medium sized business, there are pressures and considerations that you haven’t faced before. Knowing what they are, and being ready to manage them, is critical to a successful scale-up.
As you scale up, you’ll need to take on more staff, or get new suppliers involved in your business. Previously, your workforce consisted of you, perhaps backed up by a small-but-committed team. When you grow, however, you’re more likely to attract employees that are less invested in the success of your business.
That’s why introducing performance metrics, which may not have been necessary working with a handful of people, becomes critical with an enlarged team of staff or suppliers. You need to make it clear that your new employees will be expected to pull their weight, meeting (realistic) targets and justifying themselves where they fall short. Aside from putting pressure on the team to deliver, you’ll be able to identify problems far earlier.
One of the most consistent challenges to growing businesses is the ‘lag time’ between winning a new deal and getting paid for it. Even with strict payment terms and an efficient collection system, you’ll probably have to service a new contract for one or two months before it makes an impact on your finances.
How you respond to this ‘lag time’ is important. When you win a contract, plan on the basis that you will have to service it or deliver products using existing resources for a quarter. After all, there’s no point being profitable on paper if natural growth means you consistently struggle to pay the bills.
When you’re in the start-up stage, you’re grateful for every bit of work that comes your way. As you grow, however, you need to always be evaluating which clients or contracts are more trouble than they’re worth.
A previous article on this blog looked at evaluating your profitability, and the importance of working out whether a given client is a valuable source of revenue or an unprofitable drag on your business. Now that you’re growing, you probably have to look again at your earliest clients – they probably got a great deal as you scrabbled for any business you could get, so you may need to either upsell them or let them go. This can be a painful process, but it’s vital as you move to becoming a more professional outfit.
The continued support of your lenders as you grow and face larger overheads is going to be important. Previously, you might have been able to ride out a bad cash-flow month by delaying your own salary for a few weeks – however, that won’t cut it when you have higher rent, more salaries and more suppliers to pay. Make sure to get the finance that you need to sustain growth organised, whether that’s an overdraft facility or a term loan to give a capital injection. Remember, if you have a track record of meeting your obligations and convincing evidence that you’re on a growth trajectory, then getting finance will be a lot easier than it was starting out.
At DCA, we advise many clients that are looking for finance, or to optimise their businesses for growth. If you’re looking to grow in the next 12 months, simply contact us for an initial, no obligation meeting to talk about what your business needs.