Chapter 6
Here are some of the challenges that high-growth businesses face and that you need to prepare for as you start to scale up.
1. Cash flow problems
Be under no illusions about the strain that business growth can have on cash flow. There are several reasons for this:
The way to mitigate this is to have detailed financial projections and cash flow plans. Forecast as accurately as you can for the next 12 months at least. And you may need to revise these projections every month, based on actual experience. If you see a potential pinch point down the road then arrange temporary cover, such as a bank overdraft or invoice financing, to get you through the cash crunch.
2. Financing expansion
This is slightly different to the first point. What I’m talking about here is longer term financing to purchase capital equipment, or maybe even for acquisitions. Since the financial crisis it’s been a tough few years for business financing, with banks tightening their belts, but on the other hand we’ve seen the rise of new types of financing, such as crowd funding and other peer-to-peer lending.
Again, any request for financing will need to be accompanied by detailed financial projections and analysis, examples of different scenarios and stress testing.
3. Operational challenges
One of the challenges of growing that can ambush you is the logistics, by which I mean office space, storage facilities, transportation and so on. You may suddenly find that you don’t have enough space for the three contractors you hired last week for an urgent project, or that the warehouse is full.
Then there’s the challenge of getting the right stock from the right suppliers at the right time and managing customer orders. What you may have done with a spreadsheet in the past is becoming far more complicated, to the point where orders are being missed and profits suffer. Make sure that you plan ahead to avoid these scenarios.
4. Staffing
This becomes a major challenge as you grow, not just in terms of actually paying staff the right amounts and deducting the correct taxes, but also the contractual and legal aspects of employing people. Of course, the larger companies have HR departments to manage this. In the meantime, I have seen many organisations that will provide outsourced services to small businesses. It’s an area that you don’t want to get wrong and is definitely worth paying someone else to do.
5. Transitioning from entrepreneur to leader
But perhaps the most important part of systemisation is for you as a business owner to relinquish some control. This will also be most difficult thing to do, as the business is your baby, which you have built up from nothing. It may also be your main source of income.
When you’re a small startup, it’s possible for you to be at the centre of everything that’s going on, guiding staff, managing relationships with customers and suppliers, etc. Indeed, it may be necessary for you to do this. But as the business grows you simply can’t remain closely involved in everything, and neither should you want to.
How can you trust people who are only interested in working from 9 to 5 and collecting a salary every month?
In this case, it may help to remember these important points:
Most importantly, your business will not grow unless you give up some control. This is your chance to bring on board people who are better than you, not just in terms of staff, but also board members and people who will challenge you.