2020 has been a year of unprecedented uncertainty. The COVID-19 pandemic and subsequent UK-wide lockdown has changed the game for many businesses. Whilst some firms have had to close, or even go out of business permanently, others have seen their profits soar. For the latter, increasing sales and profits raise the prospect of expansion. But, given the current climate, what do you need to think about before scaling up?
How do I know it’s time to expand?
First, here are a few typical signs that you’re ready to expand:
- Sales volumes are increasing
- Profits are healthy
- Staff resources are stretched
- Capacity is not meeting demand
This should be looked at over an extended period so you can assess whether you’re experiencing real growth or just a seasonal fluctuation. It’s well worth consulting with an accountant to assess your financial performance and plans for expansion.
What are the risks of expansion?
Sales are booming. Great. But there’s a balance to be found between seizing the opportunity to expand and continuing as you are. Racing into expansion carries many risks and you need to assess the pros and cons of what this means. On the one hand, you might have greater capacity and resource to sell more, but on the other, you might have more overheads and dependencies.
Also, you don’t want to lose touch with your purpose. Clothing brand Patagonia are famed for their anti-growth strategy, focusing instead on their social mission.
A good way to establish your appetite for risk is to ask the simple question: where do you want to be in five years’ time? Think about this on both a business and personal level. To get where you want to be, do you need to expand, or can you facilitate this by restructuring your current operations? If you do expand, are you happy with the financial implications?
Let’s look at what those financial implications might be:
To expand your business, you usually need to grow your workforce too. Whether you’re opening a new site, increasing your product lines or dealing with extra admin, having sufficient resource will enable you to operate efficiently. In turn, this can have a transformative effect on product delivery and the overall customer experience. Conversely, being inadequately resourced will have a detrimental effect on your business and sap staff morale.
The case, therefore, for growing your workforce is clear. But, given staff wages are one of the most significant business overheads, you need to be strategic in how you go about this. Always think about output when creating roles. Have an organisational plan with clear KPIs against every job role and ensure you revisit your business plan.
Alternatively, consider if it would be cheaper or more effective to outsource work to freelancers and agencies. For example, do you need a finance team, or can you use an accountant? This might work in the short term but could become complicated if you do decide to bring it in-house later down the line.
Equipment and premises
If you’re spending money on people, you need to create the conditions for them to prosper. And that often means investing in new equipment and facilities. If your business is a restaurant, for example, there’s no point in having extra chefs and waiters if your kitchen equipment is not up to standard. Alternatively, for an office-based business, you may also need to rent or buy a bigger workspace or operate multiple sites to accommodate your growing workforce.
Expansion is expensive and most businesses won’t have the money to pay for it upfront. Whilst there’s plenty of funding support to provide this kind of cash investment, you should study the finances closely to understand the implications. Consider the benefits of leasing vs buying and, again, speak to your accountant for advice.
Systems and software
Technology can massively enhance the way you do business as you expand. Whether it’s collaborating remotely, managing finances, gathering customer insights, or promoting your services, there are vast array of tools, software and systems that can improve how you operate. You need to work intelligently and iron out inefficiencies as much as possible, especially given the acute pressures businesses face in the current climate.
Here are some of the main ones to consider:
- Accounting software such as Sage and Xero can help you manage your finances more effectively.
- CRM systems and email marketing software can help you to automate your communications and help you understand customer behaviour so you can market to them more intelligently.
- Point of Sale systems can help you not only take payment from customers but also help you manage payroll and staffing requirements.
It’s possible that you already have these systems in place, but it’s worth reviewing to see if they still meet your needs. For example, your business website, may need to be redesigned and/or optimised to capitalise on your expanded activity. Equally, don’t overlook the more fundamental things such as your business bank account to make sure you’re paying for a package that gives you what you want (e.g. low international transaction fees and account management support).
There’s no reward in life without risk
Expansion is equal parts scary and exciting. Sure, there’s a lot to think about as you carefully negotiate these considerations. But, it’s all part of the journey. You’ve invested time and money to get your business to this point and you want to keep building on that momentum. It’s important in life to have fresh challenges and the great thing is you already know your business. It’s not like you’re starting completely fresh. Tap into all the wonderful lessons and insights you’ve gathered along the way. In many ways, the hardest part is getting started. Expansion is just building intelligently on the successes you’ve had so far.