You’re Experiencing Business Growth—But How do You Stay on Top of Finances When it’s Time to Scale?

October 18, 2016

Business is booming. You started out as a one-person operation, but your business has grown so much that it’s time to expand.

First, take a breath.

It’s easy to get so caught up in the excitement of building a team that you end up overspending. Make no mistake, this is time to celebrate! But it’s also a time to be responsible and cautious, making strategic moves to scale your business in ways that lead you to long-term success.

As Always, Maintain a Budget (and Stay on It)

Sometimes it feels like budget should be a four-letter word. It’s a rare person who actually enjoys budgeting. It can be tedious, but it’s essential, especially for a growing business.

Most small business owners start out with the gross profit they want to make, then think of how much money they’ll spend to get there. If you’ve been budgeting for your small business from the start, you won’t be starting from scratch. If this is your first time drawing up a budget, use your historical income and expenses as a starting point.

Next, consider how much more you can realistically make by scaling the business. For example, you’ve decided to invest in a marketing campaign that will cost $65,000. How much additional revenue do you hope to bring in from this project? Over what period of time? Knowing these numbers is crucial. After all, why invest in the new campaign if you have no idea what the result will be?

Once you’ve set a budget, compare your budget to actual at least monthly. Keep track of where you are in relation to your goals so you’ll know whether your efforts are working or you need to rethink your strategy.

Have a Cash Flow Strategy (It’s Different from Budgeting)

A cash flow strategy may sound similar to budgeting, but they aren’t the same. A company can have excellent revenues and weak cash flow.

Paying the bills, paying employees and purchasing materials and supplies are critical for all small business owners, but if your money is tied up in receivables or debt payments—a common scenario for a growing business—you can be turning a profit but unable to pay your bills.

One of the best ways to manage your cash flow is to maintain a cash reserve. If your cash inflows were to suddenly dry up due to an economic downturn or another unexpected event, how much would you need to continue operations for 3–6 months? Saving that much cash won’t happen overnight, so set a goal to save at least one month’s worth of expenses, then work toward growing your emergency fund over time.

This is also a good opportunity to consider backup funding plans. If your income dropped suddenly and you didn’t have cash in the bank, could you borrow from friends or family, survive with a credit card, turn to crowdfunding or access a small business line-of-credit? Have a contingency plan in place for these times—it’s crucial.

Test the Waters by Outsourcing

When your business reaches that critical point where you just can’t handle doing it all yourself, your first thought may be to hire an employee. Before you do that, consider outsourcing.

Outsourcing allows you to expand your capacity without having to formally hire staff, lease a larger space, or invest in additional equipment. The types of activities you outsource will vary based on your industry and individual needs. You might outsource a web designer to create a flashier website or hire a marketing company to handle your ad campaigns.

The first function that many small business owners outsource is accounting and bookkeeping. Keeping track of your small business finances is crucial, but time-consuming. Not to mention that many small business owners start their company as a passion project. Their skills don’t necessarily involve reconciling bank accounts and preparing tax returns. Often, you can outsource these functions at a fraction of the cost of hiring an employee, since hiring requires not just paying a salary, but workers compensation insurance, payroll taxes and possibly benefits.

Today, many accounting firms offer not just bookkeeping services, but outsourced Controller and CFO services. Having access to that kind of strategic advice can be invaluable, especially while your business is growing by leaps and bounds.

When it’s Time to Hire, Invest in Your Team

Some business functions are ideal for outsourcing, others are better served by hiring directly. When the time actually comes to hire an employee, don’t go with whoever is cheapest.

People are not like office supplies. You can bargain shop for the most affordable stapler. It might serve the same purpose as the more expensive version, but that same philosophy does not apply to your staff.

The benefits of an expensive hire won’t be immediately apparent because the same initial hiring process will cost you more. But hiring quality people means they can get up and running faster, and provide increased, long-term productivity.

Many small business owners make the mistake of hiring the best person for the least amount of money. The problem is these are often the under-performers who will take the most time to train. In many cases, you will be better off paying more than you think you can afford for the right person.

Once you have that person on board, ensure they know that their presence is valued and you want them to come with you wherever you go. The best and brightest employees want to continue learning, growing and advancing in their career. Invest in them and your investment will produce real returns in your business.

Understand the Ins and Outs of Ensuring Your Team Gets Paid

As soon as you’ve made your first hire, it’s time to deal with payroll. Payroll processing and paying employment taxes is complicated, but it must be done correctly. Your employees will be unhappy and you could end up paying huge penalties otherwise. Even a seasoned business owner can become overwhelmed with payroll requirements, especially when you consider each state government has its own unique requirements on top of already complicated federal laws.

Why bother educating yourself on the endless and ever-changing payroll tax rules and rates when you can outsource that function? Look into online payroll services that can automate the process at a reasonable cost. They can lead you through the paperwork needed for each employee, calculate withholding, make federal and state tax deposits and file quarterly and annual federal and state employment tax returns. There are a number of companies that offer this service. Ask around for referrals from other small business owners that you trust.

Managing your money through your company’s first big growth spurt can be tricky. You need to continue servicing clients and performing your day-to-day work while also planning your finances for bigger projects and bigger audiences. Managing your finances through this growth period is just as important as it was when you started your business.

Runaway growth is often cited as one of the top reasons that small businesses fail. Don’t confuse success with how fast you can expand your business. Focus on slow and steady growth. Continue to budget, manage cash flow, and make strategic investments in your team. With the right processes and people in place, you can keep your focus on working on your business, rather than in it.

about the author

Freelance Contributor Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction and binge-watching Real Housewives.

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