Preparing for growth involves much more than buying warehouse space or hiring an extra worker. What many CEOs don’t realize, until it’s too late, is that growing costs a lot. Failing to plan effectively can spell disaster for a company with growing demand. Successful companies make their growth strategy an essential element of their business plan and recognize where growth can put a strain on time and resources. As you build your business, consider how growth will affect your operations in these key areas to make sure your company is ready to go big.
Don’t Put Off Growth Planning, It Will Cost You
Whether it’s a lemonade stand on the corner or a Fortune 500 company, every business must consider what happens when they grow. As the demand for your products and services increases, CEOs need to ensure the company can fulfill every order received. Missing deadlines can seriously damage your company’s reputation and discourage future clients from doing business with you. The best way to avoid this is to plan early.
Preparing for growth requires an in-depth look at your company’s finances, as well as an extensive analysis of external factors in the market. This kind of analysis will take lots of time and research from the CEO and financial team.
For businesses with limited time and resources, hiring a fractional CFO to conduct a business growth analysis could be the right move to ensure the work gets done without interrupting the rest of your staff’s workflow. Either way, managing your expansion correctly can be the difference between short-term buzz and long-term success.
More Sales ≠ More Cash
You might believe an increase in sales has a direct correlation to business profits. Unfortunately, this isn’t always the case. In fact, an unexpected increase in sales can put a strain on your cash cycle, or the time difference between when your suppliers get paid and when your customers pay you. This is an extremely important ratio to monitor, as it will help you manage the amount of cash your company has on hand and anticipate upcoming issues in financing. An ideal cash cycle ratio is as close to zero as possible, and there are a few ways to reduce it as a CEO.
Reduce spending – For some operations running on shoe-string budgets, this is easier said than done. Try to hone in on excess purchases and cut down waste wherever possible.
Incentivize clients to pay earlier – Getting paid in a timely manner is crucial for your operation. Negotiate payment due dates with your clients or offer incentives to pay early. Having the cash a few weeks earlier may be worth the cost of the discount if it means your company can buy the equipment and materials it needs to fulfill orders.
Pay close attention to your inventory – Maintaining a large inventory has expensive recurring costs that can get out of hand quickly in a slow sales quarter. Consider only having your most popular items in stock until you can afford to have the full selection.
Talk to your suppliers – Sometimes your company has the money on paper, they just don’t have it in hand. Many suppliers recognize this and are willing to give credit or extend payment intervals if they have a good relationship with your company. You shouldn’t bank on this option, but it couldn’t hurt to ask.
Success is Rarely Built in a Broom Closet
Building infrastructure is a necessary investment for growth, but the CEO needs to keep in mind it’s not just the buildings that need to be bought and managed. Facilities require maintenance, and repairing unforeseen problems can cost millions if your company uses specialized equipment.
Your physical property holds a lot of value for your business, but in the 21st century, scalable work is rarely done on paper records. The electronic systems your company uses for CRM, accounting, inventory, and all other internal processes should receive just as much scrutiny and care as your office or warehouse. Similarly, they’ll also need to be maintained and upgraded over time. Big systems like these aren’t cheap and will likely have recurring costs that grow as more users need access.
As with any big investment, the key is finding the right time to move and preparing for the next steps.
Finding the Right Help Takes Time
Eventually, entrepreneurs need to pass off some of their responsibilities onto new employees. Salaries and benefits are massive expenses for large companies, but there are hidden costs of expanding the workforce that can be just as costly.
Hiring – Finding quality candidates for your open positions can take time and research, even with the many services available for business owners today. Advertising positions, reviewing applications, and interviewing takes up valuable working time. Depending on your costs, you may have to consider outsourced or remote workers to reduce spending in-house.
Training and turnover – Every job requires training, though the amount of training an employee needs varies by position. An inefficient, unpleasant onboarding process can increase turnover, putting even more pressure on your hiring and training personnel. In an economy where people typically switch jobs every few years, turnover is already a big problem.
Office culture – Establishing a company culture is often something leaders do with their attitude and management style, but it can also require certain investments to help your employees be more productive. For example, shifting to a more flexible workweek can make employees happier and more excited to work in some industries, but can also require major shifts to scheduling. Every employee is different, it’s up to the managers to determine which tactics will work best for their team.
Legal issues – An unanticipated lawsuit, contract negotiation, or other legal matter can be a serious obstacle to your company’s growth. Lawyers are very expensive, and legal issues on average take a very long time to complete. Some will require gathering records or other information which will take away from your staff’s working time.
As your Company Changes, So Does the Market
A CEO can do their best to perfect and control internal operations, unfortunately, the market will always be a variable. New firms and technologies can rapidly shift consumer demands, and an unstable political environment can make it hard for companies to make plans for the next decade. A change in the tax rate or federal interest rate dramatically shifts the landscape for business investments. However your company decides to pursue its goals, forecasting and planning will always have some element of uncertainty caused by an ever-evolving market.
Growth planning is something every business should undergo to prepare for long-term success. Hiring costs aren’t as straightforward as they seem. Internal systems will need to be expanded, equipment must be maintained, and every lemonade stand has to re-up on lemons and sugar eventually. Will your company be ready when the sales start rolling in? When life gives you lemons, it’s up to you to make sure they last until the next batch.