You’ve survived your first three years, sales are steady and you’ve created solid foundations on which to scale your business. Congratulations – with startup failure rates high in the UK, you’ve defied the odds and proven your business model is viable. Now for the next step.
Scaling a business brings advantages such as economies of scale, new product lines and of course, increased profits, but it also creates additional risk that can threaten the stability of your business. So, what strategies can you use to scale your business successfully, and is now really the right time to grow?
Are you ready to scale your business?
Trying to scale before you’re ready can put undue strain on cash flow and potentially damage your business. For that reason, you should look for the following signs that it’s ready to grow:
- You’re turning down new opportunities – If you’re having to turn down work due to a lack of stock, employees or time, that’s certainly a good sign. If the number of people showing an interest in your offering has increased and it isn’t just a seasonal spike, it means your growth should be sustainable.
- There’s strong cash flow and repeatable sales – Simply being profitable isn’t enough to justify expansion. You must also have a strong understanding of the business model and its performance over time. Creating cash flow forecasts for the best and worst case scenario is a good place to start. If the gap between the two scenarios is relatively slim, then now could be the time to grow.
- The risks are minimal – Risk is inherent in any business decision, but if you can scale without taking unnecessary risks, such as relying too heavily on finance, then you have an excellent opportunity to scale your business.
How to scale a business
The signs are there that your business is primed for growth, but what strategies can you put in place to scale your business successfully?
- Forecast increased sales vs. costs of expansion
It’s likely that you will incur many of the costs of expansion before sales can be increased. Additional staff, extra inventory and new office equipment will have to be paid for before your capacity will grow. Forecasting the costs of expansion against the extra sales it’ll generate will determine where your break-even point will be.
- Explore your finance options thoroughly
Unless the business has managed to build up sizeable reserves over the last three years, then it’s likely the expansion will have to be financed externally, at least in part. If your business is built on solid ground, accessing debt finance shouldn’t be a problem, but you might also wish to consider equity finance as an option. Just be aware that the latter will involve giving away a share of your business. There’s also a growing range of alternative finance streams available such as invoice finance and asset-based lending, so make sure you explore them all.
- Consider outsourcing
The costs of hiring the skilled staff you need could be prohibitive. Outsourcing to a third party can allow you to scale quickly but also provide the flexibility to reduce your capacity as and when you need to. An outsourced specialist will be more efficient at handling certain functions and allow you to scale cost-effectively.
- Set targets
Scaling means different things to different businesses. A reasonable goal might be to double your revenue over the next two years or add 10% to your market share. It’s important to set targets that are measurable and achievable to add maximum value to your business.
- Make sales your priority
Scaling your business relies on you selling more, so you have to put the processes in place to make that a reality. You should look at your sales process from beginning to end and be prepared to invest to make improvements where necessary. You need:
- Sufficient marketing activity to generate the required number of leads
- Enough sales representatives to track, follow up and close those leads
- A robust system to manage all orders
- A billing and receivables system to ensure invoices are sent and payments are collected efficiently
Automate your collections
Maintaining a healthy level of cash flow is one the biggest challenges a growing business will face. With more money being spent to generate growth, it’s essential you have an effective collections process in place to keep payments coming into the business on time. Automating payments in the first instance can reduce the time wasted chasing clients and provide reassurance that the cash will be there when you need it.
Payment solutions to support SME growth
At London & Zurich, our Direct Debit and card payment solutions give you complete control of your collections process to help you grow. To find out more, please get in touch with our team today.
