Ambitious entrepreneurs will always be looking for ways to expand their business. When sales start to come in and clients begin queuing up, it’s only natural to examine how you can build on your early success to maximise profits. Yet it can be possible for SME owners to overstretch their business – and themselves – before being ready.
The risks to your business of over-expanding are significant. If you’re stretched too thin, the quality of the goods or services you provide could suffer, leading to a loss of confidence among existing customers and difficulty in acquiring new ones. If the problems are not addressed, it can pose an existential threat to your business.
Eight signs your business could be expanding too fast
Ian Duffew, one of our Business Growth Advisors, highlights some of the key issues you might experience if your business is expanding too quickly:
- Quality issues increase due to over-commitment and additional time pressures, meaning your usually high standards are no longer being met
- Operational cost increases as a result of redoing work and fixing errors
- Customer complaints increase because of under-performance and late delivery
- Planning turns to firefighting as you respond to emerging issues and customer dissatisfaction
- Processes become inefficient because they weren’t set up for this level of volume
- Profit levels decrease as clients question value for money, cancel future orders and refuse to pay for corrective actions
- Team morale suffers due to employees feeling the pressure, negativity and sense of failure
- Repeated mistakes occur as a result of being too busy to learn lessons and implement improvements
Avoiding falling into these traps is never easy. However, Ian suggests that there are a few things business owners should consider to counter these risks, including being brutally realistic with customers up front on delivery timeframes; increasing quote costs to take account of extra resource, overtime working or the risk of additional supply-chain prices; and descoping the job up front to a level that the customer is happy with and your business can achieve.
Investing in growth
While over-expansion is clearly a risk, not growing at all is possibly even worse. It is therefore vital to know when to invest in growth and on which part of the business you should focus for maximum impact. This requires a true understanding of the current and future marketplace. Sometimes, an SME might require funding to support that growth, in which case understanding and assessing your financing options can help you make a better decision. In all cases, advice from St. James’s Place or Elephants Child can help.
The two main options for financing can be broadly split into debt or equity. Banks that provide loans to SMEs, especially those in the early stages of their development, can insist on personal guarantees on the loans. Other debt options exist in the alternative finance market, including peer-to-peer lenders such as Funding Circle.
Raising funds through selling equity involves giving up a share of your business to an investor. While this can seem an attractive proposition if there is sufficient interest from potential investors, there is a risk of entrepreneurs undervaluing their business and diluting their ownership for too low a price. In all cases, sound financial advice can help you make the right decision.
The importance of work/life balance
Expanding too fast can also have an impact on your own mental and physical health. Running a business can be stressful at the best of times, but that pressure becomes even greater if you’re trying to do too much, too soon. In a survey of 700 SME owners by software developer FreeAgent, 53% felt burned out by working too hard and 86% said they had sacrificed their own personal care for the sake of their business.1
One way to avoid personal burnout and some of the risks to your business of expanding too fast is to concentrate on achieving a strong work/life balance. Simple decisions such as designating at least one fixed day a week to step away completely from the business and having hobbies outside of work can make all the difference when seeking this balance.
“Be realistic and accept that running a business takes a huge amount of your time and energy, especially in the early days,” says Ian. With that in mind, he suggests tactics such as identifying a time when you will stop working each day, planning and taking your holidays, and enjoying activities that take you away from thinking about the business. Perhaps most important is always ensuring you find time for friends and family. “Prioritise the important people in your life,” he says, “and make room for them in your busy schedule.”