The Financial Challenges of Expanding your Business and How to Handle Them
If you have five employees in your business and you would like to grow that number to fifty, does that mean you will make ten times the level of profit? Or will it just make the headache of running your business ten times as bad?
Growing a business is never easy and there will be lots of new hurdles you will have to jump over to succeed – many of them financial and other managerial. In this article, Panthera explains what these financial challenges are and how you can overcome them.
Other businesses will take note of your expansion – they will be very interested in what you’re doing. If you are intending on slicing off a bigger piece of the market for yourself, then they’ll be forced to put up a fight. This means you can expect fiercer competition from your competitors which can be difficult to plan for.
Many business owners fail to plan for this because it’s hard to predict just how your competition is going to react to your expansion. The way to deal with this is by being prepared to cut your prices or to offer a higher quality service during and after your expansion. This can be taxing on your cash flow and your staff’s time so build up your financial reserves and draft in extra help when needed before you expand to make sure that you don’t get outdone by your competition.
When you expand, you can expect to see your cash flow become more behaviourally unpredictable. You will have new outgoings (perhaps you have leased additional premises or you have more employees to pay) and you will have to achieve a new and higher level of income for your business too.
An unpredictable cash flow can mean that if you let your outgoings run away, it could spell the end of your venture. Stabilising your cash flow should be at the top of your priorities list when you are expanding.
Monitor exactly how much is coming into and out of your business each month. You can use this information to set yourself a better budget for the future - making sure you keep some cash aside for a rainy day too, of course.
If you are looking to expand your business to, say, a second location, you will need to hire new employees and possibly second some of your existing staff to babysit them until the new location can stand on its own two feet. When you add the costs of the premises, staff training, and their pay together, the cost can be surprisingly high.
The way to tackle this issue is by carefully selecting who will be working at your expanded premises ahead of time. Expansions take place over time anyway, so you should have a better chance of finding the right person for the job if you start your search early.
One significant financial risk of expanding your business that you might be forced to pay for it yourself. Sometimes, whether it is because of a poor credit score or a lack of interested investors or bank managers, this might not be the right time to secure this funding.
You can still grow and expand your business without this funding. However, all of the financial risk will be placed on you. The benefit of this is that, if your expansion is successful, you will keep all of the rewards of your efforts.
We recommend using your Panthera accountant to help you create a plan for saving up the money that an expansion requires. Accountants can also help you allocate this money in the most efficient way, meaning you can expand your business without the help of outside investors.
If you are looking to expand your business and you would like some advice on how to stabilise your cash flow and budget effectively, contact our team. Get in touch with our expert team on 01235 768 561 or email email@example.com.