If your small business has been generating a healthy profit, chances are you have considered whether or not it’s time to expand. While launching a growth initiative can be exciting, scaling too quickly can create challenges for small business owners if they are not properly prepared.
According to a survey by StartupGenom, scaling prematurely is the most common reason for startups to perform poorly. Entrepreneurs get ahead of themselves by expanding their team, product line, or their customer acquisition strategy before they have a solid foundation in place.
Scaling a business requires careful strategic planning. It is essential to have the right systems, staff, technology, partners, and financing to support steady, sustainable growth. If you are thinking about expanding your business, here are some of the key questions to ask yourself and your leadership team.
Do you have the desire to grow?
Entrepreneurs need to think big and have the passion to see their business grow. Before you embark on an expansion, you need to decide if you have the desire and the drive to scale.
Ambitious entrepreneurs have a clear vision of the ultimate goal for their business. When you have determined your destination, you can develop growth targets, a scale plan strategy, and concrete actions to get you there. For example, building a company to sell requires a different approach than growing a business that supports a certain lifestyle.
Growth-minded owners should also focus on developing partnerships with people and organizations outside the business. Work to build a network of service providers, sales channel partners, suppliers, and other established companies that can help support your expansion objectives.
Is your business model sustainable?
An in-depth analysis of your company and the marketplace is essential if you’re planning to expand. Being profitable may not be reason enough to scale your operation. You will need to evaluate your business model and its performance record to determine if it’s sustainable. Verify that your products or services fit the market and are addressing the needs of your customers, and do your homework to find out if there is a broader audience for what you offer.
Although your business has proven to be successful on a small scale, you will need to assess whether it can continue to turn a profit over the longer term. Rather than rely on a qualitative assessment, use quantitative data to make a determination about your business’s future potential. Having solid numbers is critical to making accurate forecasts for revenue, profits, costs, and stability.
Can your infrastructure handle increased demand?
Expanding a business typically results in a new level of complexity, and you will need robust systems to manage it. Take stock of the processes, people, and technology that support your business. Review your accounting, HR, payroll, and bookkeeping processes to determine if they are comprehensive and sophisticated enough to support your planned growth. It may be time to hire specialists in areas such as IT, customer service, or marketing to help you take your business to the next level.
If you don’t have the budget to build an in-house back office team, accounting software programs can help improve efficiency by minimizing the amount of time spent on administrative functions. Streamlining and automating processes wherever possible will free you up to focus on other aspects of running your business.
Do you have the right team in place?
As your business grows, you will need a dedicated team that can deal with the challenges that typically come with expansion. It’s essential to plan for delegating extra responsibilities to your best people and making sure they are ready for the challenge. These employees not only have the skills you need, but they work together well and are passionate about seeing your business succeed.
If you anticipate a rapid influx of new customers, consider hiring before you start ramping up operations. When recruiting new employees, focus on candidates whose values, beliefs, and behavior are aligned with those of your organization, making them a good cultural fit. Try to get a sense of each candidate’s personality to determine if they will mesh with your current team. In the long run, it pays to invest the time and effort in choosing new hires who can not only do the job well, but who are enthusiastic about what you’re trying to do.
Keep in mind that there may be functions you cannot or should not perform internally. Consider outsourcing non-essential roles to third parties that have the skills and systems to be much more efficient. Consultants, high-level professionals, and service firms can save you time and money, positioning your business to scale at a lower cost.
Do you have access to working capital?
Small business owners looking to expand must be on solid ground financially. Regardless of your scale strategy, you will need cash to implement the actions necessary to take you to the next level. However, cash flow can be a challenge as increased demand for products and services requires greater expenditures for space, inventory, production, and payroll.
Evaluate whether or not you have enough capital to support your growth strategy, and explore financing options before you make the leap. Having access to working capital financing can help you cover expenses as you expand, rather than relying on existing cash flow. You can use the funds to invest in more space or another location, pay for employee training, launch a new marketing plan, or buy additional inventory to fill future orders.
Summit Financial Resources offers custom financing solutions that use your accounts receivable and other assets as collateral. We are not regulated like a bank, so we can structure flexible deals and make funding decisions quickly to help you move beyond any financial hurdles – and follow a careful, calculated path to steady and sustainable growth.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.