Last month I started a consultancy project for the female founder of a medium sized business with a workforce of 80 employees. She started her company 10 years ago from the kitchen table, and has built it from the ground up. This year she’s aiming to double turnover.
As a CEO, I doubled the turnover of that business within 12 months so I know how blisteringly hard it is to scale your business. What I hadn’t appreciated, until I did the market research for my business consultancy, was just how few businesses actually scale. Here in the UK, there are 5.5 million businesses, yet in 2015 the number of scale up businesses was 31,440. That’s just 0.6% of UK businesses!
This got me wondering, why do so few businesses scale?
To answer this question, it’s important to remember that start-ups generally have an informal management style with few systems and processes. Founders try to keep costs down while growing turnover and profits. This often means the founder is carrying out tasks which really could and should be delegated.
If you want to scale your business, here’s what I think is important:
1. CASH FLOW AND FINANCIAL MANAGEMENT
I cannot emphasise strongly enough how essential good cash flow control is for any business. For a growing business, it’s crucial – cash constraints can be the biggest factor limiting growth and overtrading can be fatal.
Good cash flow management enables you to plan ahead and anticipate any potential cash dips, perhaps due to seasonal variations. And it helps you anticipate your financing needs and arrange suitable funding e.g. an overdraft facility.
2. ADEQUATE CASH RESERVES
If you want to scale your business, it’s important to build up sufficient cash reserves to minimise the risks. Your cash reserves come from your profits. The higher your net profit percentage and the tighter your financial controls, the quicker you’ll be able to build up a financial cushion.
The size your cash reserves need to be depends on a variety of factors. From how long it takes customers to pay you to your credit terms with suppliers to the extent of seasonal fluctuations and to the speed prospects move through your pipeline. You’ll need to think this through for your business, and then set a number. As a CEO, our company always carried a minimum of 12 months’ worth of cash reserves. In my business consultancy, I’m currently happy with 3 months. As I scale, I’ll want to increase this to 6 months.
3. ACCESS TO THE RIGHT TALENT
After cash flow problems, the most comment complaint I hear from business owners is how to find staff with the right skills and experience. The reality is most people don’t want to leave stable employment to work for a start-up. And there are serious skills shortages in many areas meaning that suitable candidates are often in short supply.
Planning ahead will help you to recruit successfully. Micro-businesses need to think in terms of their organisation chart for the next 12 months, while larger businesses should look ahead to the coming two years. You shouldn’t leave it until you desperately need someone before you start looking for them – because you may struggle to find enough good applicants to choose from.
I often hear business owners say, “Nobody else can do the job as well as me.” And “When I know how to do it myself, I’ll delegate it.” The sooner you understand you can’t do everything yourself, the quicker your business is going to expand,.
This means readily delegating authority and responsibility, proactively collaborating with others, recognising and drawing on people’s special abilities and ensuring that team members become effective contributors to the business.
This means learning how to recruit, train, support and manage people to carry out roles that can easily be done by somebody else. Routine administrative tasks, call answering, even your housekeeping!
And it means bringing in people with specialist knowledge and expertise e.g. a bookkeeper, HR professional, virtual Finance Director to support you in these aspects of running a business.
5. PROBLEM SOLVING
New businesses often run in perpetual crisis mode. Every day brings new challenges that urgently need resolving and the owner spends a lot of their time troubleshooting.
As your business grows, this approach simply won’t work. Spending your time soothing an irritated customer (because ‘only you’ can) might help protect that one relationship. But that might come at the expense of recruiting the right Business Development Manager who could lay the foundations for substantial new sales for years to come.
The trick is to consider in advance what could go wrong, and then put in place a contingency plan. Having adequate cash reserves means you’ll be able to trade comfortably if a customer pays late. Having a portfolio of clients means that if one does decide to leave, you haven’t got all your eggs in one basket.
Question: What’s holding you back from scaling your business? I love reading your feedback so please do take a moment to share let me know in the comments box below.
EXPLORE THESE ADDITIONAL RESOURCES
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- What Makes A Good Employee
- 9 Hiring Essentials For A High Calibre Team
- The Story Of How I Started My Business – Part 1
- The Story Of How I Started My Business – Part 2
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OVER TO YOU
I’d love to start a conversation about whether we’re a good fit to work together. Simply e-mail me to arrange an informal coffee chat. There’s no hard sell. Just solid advice and a straightforward, honest assessment of whether our services would be right for you.
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