Growing a business is a very normal aspiration but how do you manage that growth so that the growing pains don’t put so much pressure on the operations that it all comes undone.
As the old saying goes “If you fail to plan, then you plan to fail”.
Make a specific growth target rather than just a vague notion of growth.
Create an Operational Plan to achieve that growth target that covers:
- Marketing – determine how many leads you will need or how many tenders you will need to submit etc, to support your growth target.
- Sales – determine how many leads will convert into sales or how many tenders you will win.
- Purchasing and Supply – calculate what production you will need to satisfy the sales plan or what products you will need to buy or what staff you will need to provide the services. Document where you will acquire the raw materials, products or staff.
- Logistics – figure out whether you will need to add vehicles to your fleet or find additional outsourced transport and how much warehousing you may need for additional stock levels.
- Staffing – work out what staffing will be needed in all areas to support the additional volumes of sales, products, services and paperwork.
- Premises – assess whether the current premises are big enough to support the increased requirements for manufacturing, warehousing and offices.
You may do it in a different order e.g., you determine the revenue growth you desire which then drives the marketing numbers needed to achieve the higher sales.
Translate that Operational into a Financial Plan:
- Full Profit & Loss – all elements of the Operational Plan will have revenue or costs associated with them e.g., normal staff costs plus the cost of any additional staff and the cost of recruiting them.
- Balance Sheet – all the movements in the P&L will be reflected in the Balance Sheet and this needs to be planned to ensure there are no unintended consequences like breaching any requirements your shareholders, investors or lending institutions might have about the balance between different elements in your assets and liabilities, otherwise known as ratios.
- Cashflow – ultimately all the activity in the Operational Plan and Financial Plan ends up being reflected in cash flow and there must be a plan to manage that cash flow. It is the one thing that often trips up growth plans. Everything is tracking according to the plans but there is a mismatch between the expenditure needed to grow sales and manage the increased activity and the cash coming in. A proper cash flow plan will reveal whether additional funding is needed in the short, medium or long term to enable the target to be reached.
- Measure and Adjust
Once the plan is agreed and implemented then the actual activity must be measured against that plan on at least a monthly basis to see how it is tracking and determine if corrective action is needed. If the variance to plan is significant then the plan may need to be adjusted. If there is a significant shortfall and it looks like the plan is working, but more slowly than expected, then adjusting the plan may mean deferring additional expenditure until it is required.
If the growth is much faster than expected, then the plan will need to be adjusted to ensure additional expenditure is made earlier and potentially show that additional funding will be required sooner. By having a plan, measuring actual results and adjusting the plan you stay in control of the growth trajectory.
It would be extremely unusual for the actual operations to be perfectly in line with the plan.
Make sure the relevant elements of the plan are communicated to the internal and external stakeholders.
All employees should be aware of what will be expected from them, whether it is additional lead generation, more sales, more widgets to be manufactured, new suppliers to be found, more employees to pay, more invoices to issue, more cash to collect, more invoices to pay or new funding to be obtained.
Suppliers need to be forewarned if greater volumes need to be supplied or they may not be able to satisfy the increased requirements. There should be discussions with third party logistics providers or suppliers of certain overhead items if there may be constraints. Financial institutions, particularly lenders, need to be kept informed to ensure there are no issues with current facilities and to ensure they are aware that additional funding may be required.
- Keep things up to date
One of the great temptations when growing a business is to prioritise the activities that promote growth and defer some of the less exciting aspects of running a business. Paperwork processing slows down, collecting debts gets neglected, suppliers don’t get paid on time, PAYG and super payments are forgotten, the accounts aren’t kept up to date etc. Maintaining the discipline of keeping these normal activities up to date is essential to ensure that the overall health of the business is strong, and the business doesn’t get into serious issues with cashflow or compliance with statutory requirements. It also means that any additional funding requirements can be pursued with the best possible chance of success when you have well maintained and up to date financial records and reports.
- Be Flexible
Having a plan is important, measuring and adjusting is necessary, communication is crucial and keeping up to date is valuable, but the need for flexibility is key. Build flexibility into the plan and keep that mindset as it is implemented and active.
- Don’t commit to a long-term lease on new premises until the growth is baked in and maintained. Look at a short-term lease somewhere close to current premises. Cultivate a strong relationship with your landlord or real estate broker.
- Don’t recruit additional permanent staff until the resource requirement is certain, employ staff as casuals or on short term contracts.
- Be prepared to look at alternative sources of funding. Maintaining a solid relationship with your lender is important, but don’t forget to do a regular comparison to see if there may be a much better facility available.
Most importantly, be flexible with the plan, it will almost always need adjusting, sometimes because the assumptions are too optimistic and is not realistically achievable, sometimes because it was too conservative and succeeded beyond all expectations. Sometimes external circumstances like Covid-19 can cause the need for a massive readjustment. Not hitting the exact target is not an issue, but not being flexible enough to adjust can cause a good plan to end in failure.
Growth in and of itself is no guarantee of success, but if you manage growth correctly then you enhance your chances of success immeasurably.