Top-Shelf Tip No. 176:

"Increasingly, management's role is not to organize work, but to direct passion and purpose."

Greg Satell

Are You Ready To Scale Your Business?

You started your business from scratch, sacrificing time and dollars to grow your staff and build your accounts. Now you are ready to take your business to the next level, but how?

Scaling a business always involves a degree of uncertainty so careful planning and prior consideration of the potential issues is must. In this issue of Promotional Consultant Today, we'll share these tips from Susan Ward, a business writer and blogger for TheBalance.com.

1. Increased Sales Vs. Costs of Expansion. Business expansion and increased sales are often a chicken and egg syndrome. Expansion may be necessary to increase sales, but increased sales may not be forthcoming unless it is apparent to the customer that the business is large enough to handle the additional sales volume. The ideal situation is to have new sales secured before expansion.

Do your market research and make a sales forecast for expansion, taking into account the potential increase in sales tempered by other factors such as the outlook for your particular industry, the fluctuations of the business cycle, and the local economy in your sales area (or elsewhere if you intend to expand geographically).

If you are relocating a significant distance, take into account that you may lose some of your existing local customers. You may also need to incur additional advertising costs to drive business to your new location.

When making a forecast of the costs for the expansion—depending on the type of business, include estimates for:

  • Leasing new building space (and possibly paying out an existing lease)
  • Renovations
  • Additional staffing
  • Additional equipment, machinery, vehicles
  • Office equipment and furniture
  • Additional inventory
  • Moving
  • Increased utilities
  • Additional property taxes

2. Is Financing Required? If scaling your business requires a capital investment, financing will be needed unless the business has sufficient retained earnings to cover the costs of expansion. As with starting a business, banks and financial institutions provide lending based on the perceived ability of the customer to repay, but if your business is on solid ground and has a track record of loan repayment it will be much easier to secure debt financing than during startup. You will need an updated business plan with the above described cost and sales forecasts to clearly demonstrate to financiers or investors that your expansion will be profitable and in the best interests of your business.

3. Are Qualified Staff Available? Ask almost any business owner and they will tell you that one of their main problems with business growth (or even maintaining their existing businesses) is acquiring qualified staff. The problem is particularly acute with skilled trades, information technology and other occupations that require specialized training and experience—such people are almost always in demand. If you are unable to obtain experienced staff to handle growth you may need to train new employees (which will consume more of your time).

For small businesses or single-owner businesses, hiring new employees (or adding partners) may involve additional considerations. Such businesses are often sole proprietorships; to reduce owner liability it is preferable to change the legal structure of this type of business to a corporation before hiring payroll employees.

4. Management. Another issue to consider when scaling a business is the increase in management duties and responsibilities. Dealing with more clients and supervising additional staff will occupy more of your time and energy. Given that the typical solo entrepreneur does everything from product development to marketing, learning how to delegate is a must when growing a business.

Scaling a business can be very profitable but also very challenging. Before embarking on a business expansion, do your homework and develop a plan for growth that will minimize risk and maximize the odds of a successful transition to a larger organization.

Source: Susan Ward is a business writer and experienced business person. Besides running her own business as a freelance writer, she and her partner run Cypress Technologies, an IT consulting business that provides services including software and database development. Ward has been a small business expert for The Balance and About.com for over 18 years.

Compiled by Cassandra Johnson

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