Business Growth Costs....
Often the objective of most businesses is SALES GROWTH, but it comes at a cost.... so the real question is - how growth ready is your business?
A basic principle of business is to generate sales (product or services) to return a profit. The natural flow on from this is to generate more sales to achieve a greater profit - but...what does this take and how prepared is your business for growth?
Listed below are five key ingredients required for successful sales growth;
Increasing sales invariably requires more of your personnel, whether it be in the creation, shipment, or sale of your product. Up to a point - growth will simply draw capacity from your existing team, but past that....you will be forced to increase your personnel. Factors to consider here are; direct hire versus contract versus outsourcing, core skill requirement, the recruitment and on-boarding process, the existing team and culture, training, KPI's, structure/supervision and of course, their cost. Specific consideration should be given with a growing team as to how to lead and manage this larger group, building in or growing the leadership structure as you go.
Put simply; growth costs money and more specifically - places stress on your working capital. It could be for additional COGS, the increase in staffing, other operational overheads, or simply the increase in the cash cycle to fund the increase in debtors etc pending payment. Simply put, growth will require more funding. Forward cashflow planning is needed to quantify this increased requirement, with this gap generally filled with a combination of increased capital, supplier terms and loan funding. From a financing perspective, an invoice financing facility can be a great tool for growing businesses – with the best tool being forward cashflow planning.
Businesses need to position themselves for growth. This can be by taking on new or increased stock lines, applying a greater spend to marketing or even taking on new equipment. Naturally these all come with a cost, so before taking on these business building costs you first must be sure that a market exists to warrant the investment. Examining the market environment, the existing products in that segment, price, market alternatives, etc will enable you to assess your market options. Evaluating these points against your proposed competitive product or service will enable you to determine viability. Naturally for new products or new markets this analysis will be more difficult, but it is unwise to progress without it.
With a growing business which simply has more moving parts (ie. more product, new markets, extra staff etc), it is critical that your systems are evolving at the same time. Systems to review include; inventory management, debtors and creditors, stock delivery, HR and naturally… financial reporting. Timely and accurate reporting for a growing business means that the finite resources of cash (for stock, marketing, equipment etc) and personnel are applied in the correct areas at the correct time.
Infrastructure is often the downstream consequence of holding more stock, having more staff and/or needing to make more deliveries. These items easily equate to the need for more floor space in the warehouse, more machinery capacity, offices, desks, chairs and computers, or delivery vans/fleet vehicles. Various options exist as to how to accommodate these, from leased to owned and various outsource contracts in between, but the key is to consider them and work out the best option for your business circumstance. Having a large shipment of product arrive with nowhere to store it can be a costly problem to have - as can having new staff with nowhere to sit or no computer system to use!
So as you sit down to plan your next marketing program to gain that extra X% of growth, take time to;
- Consider the personnel, cash, markets, systems and infrastructure requirements of this growth to identify the gaps.
- Evaluate the cost of developing these areas to enable them to meet (or prove up) your new sales aspirations.
- Develop a clear plan (with costing’s) to achieve these improvements – in line with the delivery of your sales growth milestones.
Note: many marketing plans give little or no consideration to these key growth ingredients - with this resulting in either emergency funding or costly quick remedies to fix (contract staff, flying in stock, outsourced overflow work, overtime etc).
Planning for these business growth items concurrently with your planned sales growth will ensure that you are aware of underlying cost of growth to your business.
By making your business growth ready, you will not only have fewer surprises as you grow - but ultimately, you will drive a better margin to the bottom line.