adminShelter Chieza Change Management
When most people start businesses the intention is to make money through growing that business.
However while it’s good to grow a business, the growth should be gradual and sustainable.
One of the pitfalls that some of our local businesses have fallen into is the desire to be an overnight success by expanding rapidly without proper planning.
We have had companies that have come up, become an instant success and expanded to most parts of the country virtually overnight but needless to say most of these failed to survive beyond their first or second year of operation.
Most of these businesses tended to be gullible taking up every job that came their way without necessarily taking into consideration their capacity.
As months pass, they realise they have take up too much business and do not have the financial muscle or infrastructure required to complete the huge order. This is akin to swallowing something big without chewing, most often this leads to choking in some cases death.
Such experiences tend to give the impression that starting and building a business is very difficult.
On the contrary, starting and building a business is easy but it is maintaining that business which is the difficult part.
When starting a business it’s essential to always bear in mind that it takes money to make money.
For a business to be viable there is need to continue reinvesting in the business to make it bigger and realise more revenue and profits.
I am happy when someone acquires a business and want it to spread across the country.
However I am more impressed by someone that can maintain the business after it has expended.
As the business grows and expands, you meet new challenges; suddenly you need cash so fast.
If you had not given much thought to the financial planning you will be in big trouble. As you are growing, understand your true operating costs.
Know what they are and how they evolve as your business grows. Rapid growth will increase the cost of doing business and you need to be prepared.
Understand how much cash your firm requires for day-to-day running of the business. It’s wiser to look at more than your income statement; it is not the only index of health. To get a quick pulse of how your business is doing, you need to look at other metrics besides revenue.
Financing the business is a huge deal. Try to look at alternative sources of finance. You may discover like a colleague of mine that a penalty to delay your loan repayment may be a cheaper source of finance.
He got away with a lot of things through this uncouth means of financing. I however have learnt that payables need to be serviced on time.
It may sound counter intuitive to individuals that think like my colleague but we have weathered numerous market ups and downs.
Meticulously paying suppliers on time when we were cash-rich, meant that we had gained their trust and we could go back to them for additional time to pay when times were tight.
Supplier financing is a powerful, hidden source of cash that works best when times are bad.
It may seem inevitable for a well-planned and well-executed new business to grow but some small companies are allowed to grow too quickly when management gets too excited with early success.
Impatient owners go on to launch new product lines and services, expand into unfamiliar fields, hire too many employees, acquire expensive facilities without the necessary experience, management skills, capital and support.
Almost immediately, cash flow shortages occur, maybe subtle at first, but expenses will begin to exceed revenues at an increasing pace with each new month of growth. Ultimately, the company then begins to haemorrhage.
It is very important that as a business grows, management must increase the sophistication of financial structuring and internal systems and controls.
It is a cost centre .If you are trying to grow your business, grow everything concurrently –include your financial facilities, internal systems and controls and staff capabilities.
Look around you, all successful entrepreneurs keep their eye on cash flow and they do it best by having a broad range of capital sources — and cash substitutes to draw on.
Rapid growth has the potential of having overhead costs pinching over vital expenses. Rising overhead costs could squeeze out profit.
Faced with low or minimal profitability, getting financing for the business may be much harder and servicing existing debts may be put at risk.
Growth for a business is expected but many small business owners may not realise that growing a business too quickly can eventually cause the company’s demise. It’s easy to find yourself with no working capital. You can avoid the dangers of overgrowth. Try to manage your business correctly and scaling up at a good pace, don’t swallow before you have had a chance to chew, it may sound as if I am labouring this point but planning is key.
Growth is very complex, it is hard enough to grow in the first place, so make sure that you handle it properly when that success comes.
Keep your eye on three areas of the business: your systems, your staff, and your cash reserves.
Successful growth depends on how you sustain all three of these business issues.
Till next week, may God richly bless you
Shelter Chieza is an Advisor in management issues. She can be contacted at [email protected] .
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