Ask the Expert with Steve Plaskitt – How do you know when you’re ready to scale up?

Steve Plaskitt, our Corporate Finance Partner, shares his expertise on scaling up a business.

Every business is different and there are many types of entrepreneur – some have the hunger to own a fast-growing, dynamic, innovating business whilst others may prefer to operate more of a steadier lifestyle business. Which one are you?

If you’ve made it through the initial start-up stages, and there are some exciting opportunities ahead for your business which may expose you to some personal risks and greater demands on your time, is this the right time to consider scale-up, or should you have a period of time to steady the ship? 

Frankly, there is no single, simple answer and there is no simple definition of a scale up business.  A business growing at more than 20% per year and which is searching for a repeatable scaleable business model is a useful definition of a scale up business.   In the North East alone, there are 700 scale-up’s employing over 75,000 people and collectively turning over £7.8bn, and as each business is different their paths towards scale up were different also.

So, when is the right time to follow in their footsteps and seek to scale-up? It’s a difficult decision, though there are some common signs that you could look out for in your organisation and in yourself.

1. Improving cash flow and repeatable sales

One of the first signs that your business could be ready to scale-up is that you have a predictable and improving cash flow. Once you’ve evidenced demand for your business and repeat customers are coming in, you can begin to predict the future performance of your business. You can map out your expected financial performance over the coming months and years and importantly, you can evidence that growth.

Many scale-ups can show increasing levels of recurring sales, improving customer numbers and a reduced reliance on one-off or unpredictable sales.

Before making any decisions, make sure that you assess all finances through proper planning and forecasts. This is to ensure that scaling up is not only affordable and profitable for your business but also appropriate.

2. You are beating your targets

At the beginning, many business owners find it difficult to forecast what the future will look like. They can therefore have an inconsistent record when it comes to meeting targets. As the business starts to mature, you have more understanding about the business model, the market and customers and therefore setting targets becomes more reliable.

If you are consistently beating your targets, and you are the type of entrepreneur who thrives on that challenge, then you need to revaluate your target setting in order to be ready for scale-up.  

The scale-up of your business will naturally follow from setting challenging targets and planning to put in place the right resources to achieve those targets quickly.

3. You can see new opportunities in the marketplace

By keeping an eye on early trends in your industry, you could start to have a good idea when the time might be right to scale your business and to take advantages of your competitors. An increased demand for a new product/service or examples of changes in customer behaviour which benefit your business could all point in the direction of you being able to see how you may grow your business quickly.

Particularly so, if you have spotted a niche in the market that others do not seem to have noticed yet.

4. You have a plan for growth

If you are considering scaling up, you should already have a robust business model in place. You will have traction with customers and have a demonstrable demand for whatever the business does. You will also have a reliable offer that customers come back to. But is that model scalable? Consider any changes to processes, people or structure that you may need to make. Also, any further investment which may be needed to ensure that scaling the model is the right decision.

Rapidly growing your business may also mean that you need to secure additional funding for your business. This can be to finance a higher working capital need, investment in new skills or expertise or additional capital expenditure. There are a range of funding options available, and it is important you work with corporate finance advisers to help you understand which options are the best for delivering your growth plan.

5. You have a strong, reliable team

You may be central to the running of your business, but you cannot do it all alone.  Most successful scale-up businesses have a strong workforce or management team in place that provide the support and expertise of good people.

People who are dedicated to your business and may have been around since the start will have a good understanding of the future challenges that may be faced as the business grows further.

However, to scale your business you may also need to build your team by bringing in new, high-calibre talented individuals who can bring something new to the business. When doing this, it is important to consider the impact any senior hires may have on the culture of your business as you wouldn’t want any disruption that could adversely impact your growth plans.

Contact

If you’d like to discuss scaling up your business with Steve in more detail, please contact him on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk.