SelfInformed

June 2014


Handling Rapid Business Growth

Thursday, June 12, 2014



By Sallie Hyman

 

 

The good news:
Your business is growing by leaps and bounds!

The bad news:
Your business is growing by leaps and bounds!

The lesson:
Speed kills!

 

The comments at the left are the key messages that NASE business expert Gene Fairbrother delivers about rapid business growth.

“While the first thing that comes to mind when a business closes its doors is that they didn’t have the customers to generate enough revenue to survive, there is another edge to the sword,” says Fairbrother. “Failure can also occur when a business grows too fast and the company can’t handle it.

 

“The inexperienced business owner is the most susceptible to growing too fast,” he warns. They might not have industry or management experience and all they see is the dollar signs. The attitude is, “If I can pay my bills, I must be making money.” But this not necessarily true. The common denominator seen in almost all of these cases is the failure of the small business owner to produce and understand financial statements. Most small businesses find out if they made a profit once a year when they prepare their taxes. Financial statements should be produced at least quarterly, although Fairbrother recommends monthly statements.

Today’s financial accounting programs such as Quickbooks can generate balance sheets and profit/loss statements from the information that you input during the month. If you don’t have this software or don’t understand the financial statements produced, then it is money well spent to speak with an expert. The NASE has a team of experts who can help members with these matters.

So what are the warning signs that your business is growing too fast? Fairbrother says knowing you financial position will help you see the signs. “If you have lots
of revenue, but small profits or even losses or you can’t pay providers on time, you may be taking on too much, too fast,” he says. “Also look for severe highs and lows
in cash flows.”

Fairbrother recommends looking at customer satisfaction as a monitor as well. He warns: “If customer complaints are on the rise because you are promising products or services you can’t deliver, it may be that growth has exceeded the capacity of your staff and ability to pay providers.” That equals growth that is too rapid and can result in lost customers and providers, as well.

Another sign that the business is growing too quickly is employee burnout. Is your staff becoming over-stretched because you are trying to do too much with too few employees? Also look to see how you feel about your business. Have things gotten so overwhelming and busy at the office that you dread going in? Maybe it is time to realize that things are growing too quickly.

Prepare for the Best and the Worst

The best way to avoid the disaster of rapid growth is to plan for it. Most small businesses live in the “here and now” and do not have a growth strategy written down. It is very important for all business to think 12-18 months into the future so they can plan their growth and anticipate their needs at that time.

Know Your Finances

Knowing your financial situation at any given moment
is the easiest way to prepare for growth. This will let you know what your working capital is, what profit/losses are, and how much cash is available. This information is also very important to lenders. “It is important to establish financial relationships and sufficient lines of credit before you need them,” says Fairbrother. Once the line of credit is established it will revolve as the company borrows and repays it.

As growth happens, some other financial questions to answer include: Is our pricing on target? Do we understand the true cost of each sale? What products and clients are most profitable (and which ones are actually losing money)? How will new investments affect future cash flows?

Finally, watch your money carefully. Rapid growth is a precarious balance of making and spending money, and using it wisely. Now is probably not the time to take a luxury vacation or buy a new house. You need to find a balance of spending on the company (not yourself), but you don’t want to bring in a ton of fresh capital only to sit on it. Use a portion of it to provide the tools and resources to your employees to aid in the growth process.

People Power

One of the most important aspects to manage for your business and for growth is the people. Establishing the culture of your business and then hiring people who buy into your culture will help during growth periods.

Human productivity is at the heart of business growth, so you want employees who fit into your business’s culture so that during times of turmoil, such as rapid growth, everyone is grounded in the culture. Many business experts agree that it is more important to hire people who fit the culture than it is to hire the candidate with the most impressive resume.

Once you have hired the right people for the culture, be sure to reinforce it by orienting new employees in a consistent engaging way, positively reinforcing behavior that exemplifies the desired values, over-communicating company values, and holding people accountable
for behaviors that are out of sync with
core values.

If rapid growth sneaks up on your business, don’t keep it a secret. Communicate with your staff. Fairbrother recommends holding weekly production and management meetings. Your staff is likely to respond more favorably if you inform them what is going on and what new or added roles they may have to take on during this period. They may also be able to provide feedback and ideas that can help the business navigate through the growing pains.

Resource Planning

During rapid growth, a company may realize that portions of its infrastructure are no longer adequate to handle the task. Telephone systems, computers, software, and other office equipment may not be able to handle the increased capacity. Websites may not be able to keep up to date or handle increased traffic and sales. It may be necessary to upgrade these systems to keep the business running smoothly.

Resources should also be made available to staff. During a tumultuous time of growth it is important that staff is supported. If they have bought into the company culture, then they want to be there, so don’t let them get burned out during growth. Bonuses or overtime pay can help ease the burden for employees.

Temporary help may also be necessary to get through a period of rapid growth. Fairbrother says, “Outsource to trained resources instead of trying to fast-track tasks in-house that may be outside the skill or comfort zone of current employees, such as accounting and marketing.” The more you can assist your staff, the more likely they are to handle the growth.

Focus on Customer Service

You are in business because of customers, so it is critical to stay customer focused. What they experience when they do business with you determines if they become a repeat customer. When operations are overwhelmed by waves of new business, remember that a positive customer experience is at the heart of every healthy venture. Invest resources –capital, people, technology, training, etc. – to be sure you deliver on your promises.

It may be tempting to court only the new customers during a rapid growth period, but don’t forget to pay attention to established clients. They may be the first to notice a decline in customer service and complain about the lack of service and support. Any complaints from customers should be addressed immediately and employees trained to prevent further issues.

As hard as it may be at the time, sometimes it is also necessary to say no to new customers to slow growth to controllable levels. Saying no now to an order that you cannot deliver may disappoint a customer, but it will be far less disappointing to them than if you could not fulfill a promise.

Growth Ahead

Growth should be the goal of small businesses. Having a solid grasp of the company’s financial situation should be the first step preparing for it. All businesses should create a quarterly business and growth plan and then review and revise the plans as each quarter passes. With that, there is a way to measure if goals are being met and the proper finances and resources are in place. If you are uncertain of how to formulate a plan or work through the finances, get outside professional help, such as the NASE business consultants, in building a plan to meet growth.

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