Scaling a Business the Smart Way
When you start out your business, oftentimes you run on fumes. In the beginning, you likely wear many hats and spend long hours building the dream.
A lot of top brands began in the home. Amazon, Spanx, Craigslist, and Under Armour are all famously launched by a hopeful solopreneur inside their home.
Reasons to Want Scale
The reasons to scale and grow are numerous and include but are not limited to hiring staff to offload menial administrative tasks or specialists who can more efficiently do the job you’re bootstrapping. If face-to-face meetings with clients, press, and tradespeople are necessary, having an office space and access to meeting rooms may require acquiring commercial space.
The process of hiring, and scaling a business can be quite stressful if you do not plan it out in advance.
When to Consider Scaling
There is no point in considering growth if your finances cannot sustain the growth. That’s why the very first thing to do is assess your financial books. Ensure that you have sufficient clients, contracts, or sales coming in to sustain at least a year of earnings and revenue.
Conduct an analysis of the cost of expansion. Add the cost of a lease, moving expenses, moving costs, utilities, insurance, furnishing, and more. A co-working space may alleviate some of these costs.
Factor in the salary for staff.
The very next thing you will need to do is conduct a break-even analysis to determine at one point you can expect to start seeing a return on investment of the costs of growing and scaling.
If you plan to move to a new location, factor in the fact you will lose some customers who are no longer physically near your existing location and the additional marketing and advertisement cost of growth.
If you do not have suffient earnings to absorb expansion costs, consider getting capital in the form of a loan, grant (if you’re in the public services sector) or an angel investor or venture capital.
Small Business blog summarized the following well, as excerpted below:
If your business is on solid financial ground, and has a track record of loan repayment, it will be much easier to secure debt financing for your venture. Businesses tend to put up collateral in the form of assets and accounts receivable, and approximately 6.6 million small business loans (totaling $242 billion) were reported in 2017, with 93% of those loans being issued for less than $100,000.
If your business is incorporated, or you intend to incorporate as a part of your expansion, then you can raise capital through equity financing. Equity financing involves selling shares in a business to outside angel investors.
Angel investors do not normally involve themselves in the management of the business but do expect a significant rate of return (>25%) on their investment. As of 2017, U.S. angel investment was approximately $24 billion, and contributed to the growth of more than 64,000 startups.
Obtaining Qualified Staff
One of the greatest challenges of growing or maintaining a business is finding and keeping qualified staff.
The problem is particularly acute with skilled trades, information technology, and occupations that require specialized training and experience. If you’re unable to hire and keep experienced staff to help your business grow, you will need to train new employees as they’re hired. Contractors or part-time employees may fill temporary gaps, but more than half of the small business owners surveyed in a 2019 study reported few (or zero) qualified candidates for the job openings they posted.
In some jurisdictions, you may be required to provide health insurance or other benefits if your business staff exceeds a certain number. In the U.S., the Affordable Care Act mandates that larger businesses (those with more than 50 full-time equivalent employees) offer health benefits to their workers.
If your company is a sole proprietorship, you should consider changing the legal structure of your business to a corporation before hiring payroll employees, as a way to reduce owner liability.
Growing a business demands more complicated management. Growth is characterized by serving more clients and supervising more staff, and business leaders must select and delegate tasks effectively within their team.
By following a plan, you’ll be on your way to smart business growth in no time!