What do small businesses need to scale up effectively?
While starting a business is packed full of challenges, growing it into a long term successful firm can be just as tough.
Figures from Ormsby Street have revealed that just 40% of firms make their fifth birthday, despite more than nine in ten successfully seeing out their first year.
The issue for many is clearly in the defining period in between, when they must expand beyond their initial product or service offering.
How to scale up effectively becomes a key consideration for managers, as they target sustainable growth while still making a profit.
The key is to keep an eye on the basics, or they could face financial difficulties, the threat of administration or ultimately insolvency in the worst possible scenario.
Businesses need to keep a watchful eye on their cash flow, and must act if they see something out of the ordinary or if late payments start to influence the bottom line.
One aspect of this revolves around chasing overdue payments or finding alternative finance options to cover periods when finances might be stretched.
Actively pursuing clients for invoices and having clearly defined payment terms can help to ensure swift payments – although it might upset some customers, getting paid is more important.
A firm may wish to reward businesses with an early payment discount option or include interest penalties in payment terms to encourage payment.
Ensuring that all details are correct on invoices is also essential, as mistakes can lead to delays and firms refusing to pay, which in turn places more pressure on a business, especially if a payment is delayed sufficiently enough to push it into the next payment cycle.
Having a clear understanding of the finances also enables bosses to know what money is available for growth, meaning they can budget accordingly.
Operating costs make up a large chunk of outlays as well, so efforts to keep these to a minimum are also needed – if costs outweigh new revenue streams, then the business is not going in the required direction.
By Phil Smith
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