When you think of things that can cause a business to fail, you probably think of a lack of capital, poor business planning, or slow sales. But surprisingly, business growth and strong sales often cause small businesses to fail by triggering out-of-control business growth, says The Street Smart Entrepreneur.
Overexpansion can lead to problems such as expenses outrunning budgets, inventory shortages, running short-staffed, and customer service overloads. Avoiding these problems while you work on your business growth takes careful planning and expense management software.
Here are some steps you should take to ensure your business growth doesn’t turn into growing pains.
1. Adjust your budget to keep pace with your business growth
When your business grows, your revenue and expenditures change. If your budget reflects your revenue and expenses before business growth, it is no longer realistic. Make sure you periodically update your budget to reflect your current situation and projections.
Larger firms often draft their budgets annually, but small businesses should do so more frequently. If you’re in a dynamic growth period, updating your budget every month or two is advisable.
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2. Monitor your expense management for business growth
As you’re planning your budget, make sure to update your expense estimates as well as your revenue projections. One way to keep your budget on track is by automating your fixed expense payments. Use a cloud accounting software program to keep your books in sync with your expense payments, so you have an up-to-date view of your available funds.
To reduce your expenses, look for expense categories where your budget is growing and consider ways to cut costs, such as automation and outsourcing. Always keep some funds in reserve to account for unexpected expenses.
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3. Remember your tax planning
One expense you should remember to factor into your financial planning is your taxes. As your revenue grows, your tax obligations will increase. Ensure you know your tax obligations and do not spend the funds you need to cover your taxes. Forty percent of small businesses incur average payroll tax penalties of $845 annually for inaccurate or late reporting. Make sure your taxes get paid accurately and on time using a tax preparation solution that integrates with your accounting solution to enable automated estimates and expedient payments.
4. Keep your inventory stocked
Another risk of rapid business growth is customer demand outrunning your supply. Keep up with demand by using an automated inventory solution such as Sage Inventory Advisor. Using cloud-based data analytics to collect real-time data, you can make accurate demand projections and streamline your supply logistics to keep up with demand.
5. Hire sufficient staff
Growing too fast can make you run short on staff. When you don’t have enough people to meet your customer service demands, your service quality can drop, causing the growth you’ve made to reverse due to unhappy customers. To avoid this, use staff scheduling software such as Insperity to help you better manage employee schedules and avoid shift conflicts. Or use a cloud contact center to expand your service capability by using remote workers or outsourcing.
6. Scale up your marketing gradually
To keep your business growth manageable, scale your marketing to match your revenue. Marketing is necessary for growth, but it’s also important not to overspend. Captora research reveals that smaller companies budget about 9.2 percent of revenue for marketing, enterprise corporations spend about 11 percent, and companies at the top of their niche in highly competitive markets spend about 13.6 percent. Keep your marketing budget within parameters appropriate to your revenue growth, your company’s size, and your place in your market.
Following these guidelines will help you keep the business growth of your company manageable. This will create a more solid foundation for sustaining your business growth and building your business for long-term success.
