Managing and sustaining growth, though highly desirable, can be loaded with pitfalls, both foreseen and unforeseen. Preserving cash, keeping people motivated, and continually finding more office space are just a few of the issues that you will encounter. Planning well in advance is the key in helping to minimize any negative effects the business may suffer. Deepaman Prabhakar of Taxclaim Accountants Ltd offers a few of the growth issues you may have to contend with, and a few tips in how to reduce their impact.
Increasing revenue is a good thing for businesses, but even growth spurts can be difficult to manage if cash flow is stifled. Image courtesy of: sxc.hu
Expanding your workforce.
Growing your business can mean growing your workforce, and it is very easy to underestimate the time and cost involved in hiring new people—and, more importantly, the right people. Developing job descriptions, posting ads, sorting through resumes, conducting and arranging interviews, and checking references all involve a large investment of time. However, it is important to be diligent in conducting a careful recruiting process. If you end up with someone who can’t perform the job properly, your business performance could suffer. Having to then fire them can then engender bad morale and run some legal risks, and you will have to go through the entire time-consuming recruitment process again. This is time taken from the management of regular business activities.
Moreover advertising positions can be expensive. Many small businesses underestimate the out-of-pocket costs necessary to conduct a employee search. Firms can often find themselves advertising over an extended period of time in order to attract qualified candidates—especially for more demanding positions. You need to be prepared for this.
The investment in people
The importance of having highly competent people in a fast-growth business can’t be overestimated. Workloads may be unpredictable, and new issues and problems could require innovative solutions to be implemented quickly. People who can think on their feet, adapt well to constant change, and willingly put in the extra hours to help grow the business are not easy to find, but make all the difference to long-term success.
The influx of new staff can leave current employees feeling threatened, undermined, or neglected. To avoid this post all job openings internally before, you advertising externally, and give existing staff ample opportunity to interview alongside new candidates.
A quickly growing business can burn money. Despite good profits, there could be times when a growing business will suffer a cash flow crisis as expenditures occur before expected sales are realized. Businesses with inventory or receivables risk running into this issue particularly fast. An improperly planned cash-flow is one of the most common reasons why small businesses fail during a growth spurt.
The importance of adaptable planning
The faster a business is growing the more difficult it can be to definitively plan future expenditure and income, but this is vital. Careful planning and especially constant updating of plans, particularly cash flow projections, is of paramount importance. While most businesses undertake a major review of projections and business plan once a year, with occasional minor revisions, a fast growing business has to consider drastically overhauling its plans, or at least its cash flow projections, several times during the year to take into account significant deviations from what was previously projected.
All important profit margins
In a rapidly growing business it is easy to become excited about rapidly rising sales and lose track of actual profits. If companies become ‘top-heavy’ in management expenses as they grow, transitional phases overhead expenses can mount and bring down profit margins which are essential for growth. Even if you are trying to finance growth internally, good profit margins still leave more room for error. If profit margins are reduced even a small mistake or increase in expenses can push the firm into the red.
One cannot assume that taxes rise parallel to increases in sales, and not accounting for this can lead to problems. As a business becomes more profitable and grows, the tax bill will likely increase at a higher rate than anticipated, because either you personally, or the company (if it is incorporated), will move into a higher tax bracket.
New space requirements
A growing business often means an increasing amount of space for either staff, or equipment/stock, but moving can be disruptive to operations. A good compromise is to try to attach an option to a lease allowing you to continue renting for renewable twelve-month periods of time after an initial two- to three-year firm commitment. An ideal facility would be one that has a small amount of growth space in-built. If space becomes tight consider renting a separate, nearby space for one group or department until such time as you can afford to rent a space large enough to hold all of your staff.
Growth itself can prove to be a great motivating force for employees and help project a very positive image to customers. Though it may not be stereotypical ‘British’ business advice, trumpet your successes continually to both employees and customers to derive the maximum benefit from your growth.
is practice manager at Taxclaim Accountants Ltd
, in Mayfair, London. He is a highly qualified tax and financial advisor, with over 13 years experience in the field and wide-ranging experience across a diverse range of industries. He has specialised in working with small and medium–sized businesses.
He is a qualified Chartered Management Accountant, and is a member of the Chartered Institute of Management Accountants (CIMA,) UK. He works extensively in the areas of company accounts; tax returns; self-assessments; partnership tax issues; and tax investigation.