Ask the Experts: What to Consider When Scaling a Business
Scaling a business can be a daunting prospect, particularly for an owner who has set up their company, watched it grow and is anxious about how to nurture it through that next step.
When to scale a business is as vital a question as how to scale a business – getting the timing right for the company, for the team and for the directors, and ensuring it happens when the economic climate is conducive.
But don’t be put off, because the UK economy’s success is based on the spirit of entrepreneurship.
Here are some pointers from Neil Elsden, director at Banks BHG chartered accountants, who specialise in supporting their clients in the development of their businesses.
The first thing to remember is cash flow; you will need to fund the growth, and not just in terms of capital equipment but also working capital. Don’t forget about the timing of VAT payments, especially if you are having to move from one of the schemes for smaller businesses (flat rate or cash accounting) onto the standard invoice accounting method.
Think about your premises. If you sell stock, will your current premises be able to hold sufficient reserves? Do you need to relocate? Are there break clauses in your existing lease?
Look at your human resources – we like to call them people! If you need to recruit do you know the skills that you require, how many people do you need, how much will you need to pay them and how long will you need to fund their salary costs before the sales they make start to generate positive cash flows?
Consider your suppliers. Will you be able to extend supplier payment terms or negotiate a discount for additional expenditure? Can your existing suppliers meet your new levels of demand?
If your larger scale business means you offer a wider product range, you will need to ensure your IT and ordering systems can cope.
Think about the logistics. How will you deliver your products? Do you need to invest in new vehicles or does your current logistics partner have sufficient capacity?
Before you go ahead, you need to have on paper:
A business plan
A cash flow forecast
A profit and loss forecast
And finally, make sure you get advice ahead of the upscale. Talk to your accountant, talk to your business coach, talk to your suppliers. Make sure everybody is in the loop, you have all bases covered, and then you are good to go.