If your small business has been generating a healthy profit, chances are you have been considering whether or not it’s time to expand. While launching an expansion initiative can be exciting, it’s wise to be well prepared in order to manage your business growth strategically. Here are some of the key questions to ask before deciding to scale up.
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.
Your business may have proven itself on a small scale, but you will need to assess whether it can 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.
Do you have the infrastructure in place?
Scaling a business brings with it a new level of complexity, and you will need robust systems to manage it. Take stock of the processes, people, and technology that help you run your business. Review your accounting, HR, IT, 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 like Xero and Wave can help can 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.
Is your team ready?
When you scale up, you will need a dedicated team that can deal with the increased demands that typically come with expanding. 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 also 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 getting a sense of each candidate’s personality to determine if they are a good fit 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.
Once you’ve got the right people in place, be proactive about helping them manage the workload. Pressure to bring in business or turn work around quickly can create the kind of high-stress environment that leads to employee burnout.
Do you have the working capital you need?
Small business owners looking to expand need to be on solid ground financially. Growing businesses need to spend money to make money. However, cash flow can be a challenge as increased demand for products and services results in 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. Because we are not regulated like a bank, we can structure more flexible deals, take more risks, and make funding decisions more quickly to help you move beyond any financial hurdles.
Risk is inherent in running any business, but minimizing risk should be a priority when you’re growing. Following a path of careful, calculated growth is smarter than pursuing expansion prematurely. Answering these key questions can help you identify potential weaknesses, address problems, and develop a solid plan for 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.