Avoid Growing Your Business Into A Maneating Monster
November 5, 2007
You’ve probably seen those films where some mad scientist invents these amazing robotic creatures. Then he tries to get them to do too much too fast, and they turn on him and try to destroy everything in sight.
Believe it or not, this is exactly what could happen to your business if you try to grow it too fast.
Growth is essential or your business will die. But superfast business growth can be equally dangerous if it isn’t well planned. So you need to identify any potential downside before you begin and also estimate how much cash you will need to grow. Here’s some questions you should ask yourself to avoid growing your business into disaster:
1) Will I need to recruit additional employees? If so this could put a strain on your cashflow. The costs of recruiting another employee are usually far more than just the costs of their salary. And initially sales may not increase enough to cover the additional costs involved. Make sure you know what these costs are right down to the exact penny, and ensure that you have the resources to meet them, perhaps through a bank overdraft.
2) How quickly will I get paid? Rapid growth often involves working for a different type of customer – eg: business to business instead of business to consumer. If this is the case, you have to bear in mind that it may take longer to be paid. Would your business suffer badly if you have to wait 60 days plus before you are paid? Make sure you know exactly what your business can stand. And if you’re not sure how to do this, get yourself some cashflow forecasting software.
3) Is My Pricing Accurate? Often it is tempting to put in a low price in attempt to secure a lucrative contract. However, many businesses do this only to discover that they’re actually making a loss. Make sure you cover all your costs, and also allow for any potential problems.
4) Can I Cope With The Work I Already Have? Make sure you have decent systems in place to cope with the work you’re already doing. If you don’t, you’ll get yourself into a heap of trouble if you try to do more.
5) If It Goes Pear Shaped, Could I Live With It: Consider absolutely everything that could go wrong and ask yourself what is the worst thing that could happen. Then decide whether you’d be prepared to live with the consequences.
Comments
3 Responses to “Avoid Growing Your Business Into A Maneating Monster”
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Successful And Outstanding Blogger
I’ve made all of those mistakes. Not just in a small way, but spectacularly!
And I can vouch for Cath’s advice on this one.
Sometimes when things are taking off, you don’t actually notice. I know that may sound strange, but when you’re at the eye of the storm, it can actually be deceptively still.
You’re too busy focusing inwardly to see the bigger picture. And that’s where you can suddenly find yourself with extra employees which were easily financed by a short term upsurge in trade, but after the initial storm, the upsurge has gone, but the extra employees haven’t.
So you have to be very careful about being able to spot sustainable business.
If it’s appropriate, I think it’s better to try and pursue contractual or fixed income work.
That way, it’s far easier to finance your fixed costs and be able to either cope with upsruges through over-time, or politely turn down the extra work.
You will find though that if you are good at what you do, people will wait.
Catherine,
You nailed this one. Your points are all so valid.
Having been in business for 15 years, we have had to deal with growth and slow downs several times.
Without looking at the big picture, and considering all aspects of your daily operations, your reputation can definitely suffer, if you take on too much, too fast.
Understanding yourself and your business is the way to victory.
That’s why I think the last one, number 5, its the most important suggestions on the page.
You must consider absolutely everything that could go wrong, and your secondary paths out of a sticky situation should be plan well ahead before your initial plan was set into action.