A common misconception in the business community is that the “start-up” phase is typically the riskiest stage, when in actuality small businesses are at most risk of failing in their growth phase. With growth comes an increase in critical mass, significant capital investment and an increase in overhead costs. A business operating with more staff, more locations and more revenue shows growth on paper. However the truth lies in the Profit & Loss, this same example could well be making the same or less profit as before they grew with increased administrative burden. The most important thing to know when growing a business is the difference between growth and scaling; growth is an overall increase in critical mass, however scaling is an increase in sales while decreasing costs.
As a business owner, your job is to make calculated decisions while mitigating risk. The difficult reality for business owners is that even the most meticulously managed scaling costs money and capacity. When planning to scale up a business, the key is to assess the cost versus benefit of every decision to ensure that the returns on successful scaling are higher than the potential risks.
When scaling a product based business, close attention must be paid to cash-flow and the cash burn rate. Not every small business can afford a clever CFO to manage this perpetual machine, however negotiating better payment terms with your suppliers will help you increase your stock-turnover rate. If you can effectively forecast that you are going to sell around 25 widgets next month, and you negotiate for 30 day payment terms instead of prepaid, you will tie up no capital in that stock but still collect all of the profits.
Another tip for scaling a product based business is to introduce a wholesale channel to your operation. There are an array of risks involved with establishing a wholesale channel, thankfully with the right processes and technology you can get this up and running with minimal cost or disruption. Businesses who implement wholesale the right way will quickly see turnover and profits soar, and small businesses will commonly seek wholesale as a viable method of scaling. On the flip side, the implementation of an e-Commerce sales channel can also broaden your number of potential customers.
The common theme when discussing options for scaling with minimal risk is technology. The implementation of a cloud solution is the natural progression from manual record keeping like spreadsheets, and when configured correctly will provide you with the insights to scale your business; without the cost of installing an incumbent ERP system. ALTSHIFT has provided a platform for many small businesses to scale upon, and our expertise across many different industries and verticals will ensure we see you through your growth phase. Need a hand? Talk to the experts.