1. Cash impact. Look at your capital base and understand the cash impact of your growth strategies. This will include investment in people, premises, vehicles, plant and equipment.2. Be careful not to over-trade. A sudden and substantial rise in sales can be a mixed blessing. On the one hand it signals heightened demand and a rise in turnover but on the other, it often ties up a significant outlay of cash to facilitate those sales. Over-trading can cause severe cash flow difficulties if not properly managed. 3. Prepare cashflow and profit forecasts. Remember the two are often very different with time delays on turning profit into cash. It is easy to be too optimistic on growth. Always factor in some headroom to allow the “I couldn’t have anticipated that!” factor. 4. Diversify. When it comes to sales, the temptation is to reach for the low-hanging fruit and sell more to your existing customer base. However, the fewer the customers, the greater the risk. Growth through diversification is important. A business which can show a variety of income streams and a balanced portfolio will have greater stability and will usually achieve a higher valuation than one whose turnover is reliant on the whims of a few key customers. This applies to your suppliers too. 5. Don’t forget infrastructure. As you expand, the more infrastructure you will need to put around you but be wary of changing everything at once. If you flood the business with new people, processes and systems, everyone will be learning at once and it will be more difficult to ensure quality as well as consistency across the business. 6. Delegate. The business will reach a point where it should no longer revolve around you. Plan to divest responsibility to key staff and then have a strategy to motivate and retain them. It is unlikely that the employees you had at the start will be able to provide all the skills you need as the business grows. Be prepared to buy in new skills or outsource certain functions. 7. Manage your people effectively. From an employment point of view, the bigger you are, the greater the risks. Managing employees’ rights and the processes and procedures which underpin them can quickly become a full time job. Failure to effectively manage recruitment and retention could derail your expansion plans. 8. Consider using sub-contractors. Sub-contractors can provide a sensible interim staffing solution. At face value, they may cost the business more to hire and quickly erode your profit margin if they are not managed effectively. However, sub-contractors can provide much needed expertise and greater flexibility provided you are able to implement the necessary management and cost controls. 9. Make sure your systems are fit for purpose – but invest wisely. Take too big a leap and you may be in danger of causing more problems than you solve. Do nothing, and your systems may not be able to cope with your escalating requirements. Ideally invest in systems which are scalable and can grow with you to match your needs. This will then allow time for training, re-organisation and communicating the changes. 10. Keep calm and carry on. Above all, take a measured approach and you will reap the rewards. We all know entrepreneurs who have flown by the seat of their pants and despite the odds, have done very well for themselves. However, controlled growth minimises the risks and stresses while increasing your chances of building a robust, sustainable and profitable business. David Roper is a partner in the accountancy and investment management group at Smith & Williamson.
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