Business owners dream of growing their company through new locations, markets or products. With passion, commitment and hard work, they have realized their dreams – working with small business owners and startups, I have seen it happen many times over.
But the road to success is paved with bumps and potholes, particularly for businesses experiencing rapid growth. Managing through these five common challenges is critical to growing your business and positioning it for long-term success.
Not understanding what’s going on financially
Staying on top of cash, inventory and expenses gets difficult as a company grows. Yet cash constraints can be the biggest factor limiting growth. You don’t want to pass up promising opportunities, but unless you understand every element of your cash flow and working capital needs, you are not prepared to make a good decision. Working with an outside accountant and business banker on a regular basis will help you avoid cash flow surprises and help you manage your growth needs. Then you can sleep better at night knowing you made the best financial decision for your business.
Letting sales trump everything
Sometimes sales growth leads to a decrease in profitability as economies of scale catch up. You may have to hire more employees or invest in new equipment as sales increase. Get your accountant and banker involved in your sales forecasting to gain a broader perspective of the impact to your financials and future position. If you experience lower profitability, getting financing for the business and proving you can service the debt will be more difficult, unless you have maintained an active dialogue with your banker.
Failing to build a strong leadership team
At what point do you switch from seeking employees with tactical abilities to strategic skills? Finding key people who will contribute to the company’s efficiency and productivity is important during the growth stage. As an owner, you cannot personally continue to fill the multiple roles you did early on - specialization and strategy become paramount. Leadership and management structure is an indicator of how prepared the company is to manage through the growth stage.
Maintaining inadequate systems and procedures
Documented policies and procedures become important at this stage. The informality that worked with a few employees will result in inefficiency with 20 or more without standardization. Even the ability to access information must be more timely and organized. One of the most important areas is accounts receivable management, ensuring timely customer payments to keep pace with the company’s need for cash.
Neglecting customer service
Don’t lose touch with your customers or sacrifice the quality of service and products you deliver. It’s important to pay attention to both the front-end and back-end support processes. Make sure you can keep up with order fulfillment and customer expectations. If you can’t, it’s always best to be upfront and honest in your communication with both customers and employees.
How do you manage it all?
Running a business is both exhilarating and overwhelming. As your company grows, it’s important to transition from working in the business to working on the business. Ask a lot of questions of your peers and advisors, which includes your banker and accountant. They are there to help you manage your financial needs and plan for the future of your business.
To stay updated on financial topics relevant to business owners and self-employed entrepreneurs, sign up for our series