10 Cautionary Tips for a Fast-Growing Business
It’s a business owner’s dream to see their company suddenly take off. But rapid business growth can bring a whole new set of challenges. If a company does not react fast enough to increased turnover, it could find itself buckling under the strain.
A business will need to make many changes quickly to cope with rapid business growth. A management structure will need to be put in place and new company advisors may need to be hired. Existing logistics partners may also no longer be able to meet the needs of the business. Meanwhile, product quality and customer service must be maintained.
Of course, a rapid increase in sales is an excellent problem to have. However, growth must be controlled if it is to be sustainable. Here are ten tips to help you keep your feet on the ground while managing your small business’s growth.
1. Do a Reality Check
When you experience rapid business growth, the first thing to do is take a step back and do a reality check. You need to understand why your sales have suddenly increased, and you must be sure that the increase in business will continue. You want to be confident that what you are seeing is not a one-off windfall before you begin scaling up your business. Sometimes, demand for products is boosted by one-off events. The need for face masks, for example, will be massive during a pandemic. However, once the pandemic has ended, face mask manufacturers will have to scale their operations back down again.
2. Don’t Lose Sight of Company Values
Don’t lose sight of the fact that what you did before worked. It could be the personal service that you provided that led to your rapid business growth, or it may have been the uniqueness of your product. If you discard all your company values in favor of rapid expansion, you may alienate your existing customers. A sudden change of brand personality might also destroy what was once a winning formula.
3. Control Growth
There is no guarantee that you can replicate success every time. One fast-selling product, for example, does not guarantee that every product you release will sell as well. Likewise, opening a successful branch office in another town does not mean that it’s time to go nationwide. Take growth one step at a time, even when you have the cash reserves to go faster. Stagger the launch of new products, for example, and expand into new markets one at a time.
4. Stop Doing and Start Managing
One of the first things a growing business must do is put in place a management structure. Once employee numbers begin to increase, you will no longer be able to cope with having everyone reporting to you. And you will need to delegate more and become more of a manager than a worker. It can be a tough transition for some small business owners to let go of control in this way. Still, you can’t be hands-on with everything in a large business. So, start thinking about departments and managers and move away from the flat, one-person business management structure.
5. Monitor Gross Margins and Net Profit
It is crucial that look at more than the sales numbers when your business is expanding. It would help if you also kept a close eye on gross margins and net profit. There is no point in increasing sales by 100 percent if your gross margins have decreased by the same and overheads have increased. There may be short periods of margin fluctuations as you scale up your operations. Still, it is advisable to closely monitor margins and net profit to ensure that rapid growth does not make the business unprofitable in the short-term.
Related: 10 Crucial Financial Metrics and KPIs for Small Businesses
6. Be Cautious About Long-Term Commitments
Think about scalability when you are making decisions about long-term commitments. And remember that you may have to scale down as well as up. If you enter long-term commitments and demand for your products fall, you could be left with an unprofitable business. No one likes to be a pessimist when business is booming. Even so, remember that controlled, steady growth is better than boom and bust.
7. Think About Cashflow Timing
If you offer customers credit, there will be a delay between sales and cash receipts, and there is no guarantee that customers will pay your invoices on time. Meanwhile, you may need to order increasingly more raw materials, products, or services to meet the growing demand. The timing difference between customers paying and paying vendors can lead to cash flow shortfall even when profits are high. So, it would be best to keep a close eye on receivables and your cash flow forecast to ensure that you do not fall into this timing trap.
8. Hire Wisely
Try to avoid hiring in haste when your business is growing. You will need a good team around you when your business is expanding. Filling posts with the first person that comes along may save you time in the short-term. However, dealing with troublesome or underperforming employees is an avoidable headache you don’t need. Think long-term when you recruit staff. Look for people who have the potential to grow with your expanding business. If your company continues to expand, some of the people you hire now may be part of your management team in the future.
9. Invest in Technology
Manual systems may have sufficed when your business was smaller. But, as your business grows, you will need to invest in technology to cope with increased volumes. You may need to upgrade your accounting systems, for example. And customer relationship management (CRM) software will ease the burden of keeping track of all your new prospects and customers.
Receiving and paying out a growing number of invoices can take up a lot of time and energy if you don’t have a process in place to deal with it. Many companies turn to invoice factoring, allowing you to receive immediate cash flow for your unpaid invoices and relieving you from the collection process. Another solution is to use an online invoicing system. PayPal, for example, allows freelancers to send you an invoice while removing most of the legalese, although it does come with a few extra fees. Find a service that automates the invoicing process for you so it leaves you and your accountant free to deal with other important tasks.
The crucial thing is not to let your internal systems hold back the growth of your business.
10. Utilize the Best Resources
An unexpected downside of owning an expanding business is that you might have to make some unpalatable decisions. Your long-serving and trusted accountant, for example, might not have the big-company experience that you now need. And some employees might not be well-suited to working for a larger, faster-paced business. The nature of your company will inevitably change as your business grows. But you must utilize the best internal and external resources for the company as it is now.
Related: 8 Reasons Why Expanding Businesses Experience Cash Flow Problems
The Bottom Line
Owning an expanding business is exciting. However, you must manage growth and expand in a controlled fashion. Monitor profitability and cash flow as your company grows and invest in the right people and resources. And, perhaps most crucially, don’t commit to large-scale expenditure until you are sure that the growth is not merely a short-lived, one-off increase in demand.
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Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.
