It’s one of the biggest questions facing businesses once they’ve made it through the initial startup stages and there’s no one set answer. How do you know you’re ready to scale up? In the North East alone, there are 700 scaleups employing over 75,000 people and collectively turning over £7.8bn. But when is the right time to follow in their footsteps?
Every business is different and deciding when to try to scale up (or not!) is a difficult decision. However, there are some signs that you should look out for in your organisation. Our Corporate Finance Associate Partner, Chris McCourt, reveals the top five things to look out for.
1. Improving cash flow and repeatable sales
One of the first signs that your business could be ready to scale up, and one of the most important, is that you have a predictable and improving cash flow. Once you’ve established that there is a need for your business and the customers are coming in, you can start to better predict the future performance of your business. You can map out your expected financial performance over the the months and years.
Before making any decisions, make sure that you assess all finances through proper planning and forecasts. This is to ensure that scaling up is both affordable and profitable for your business.
2. You are beating your targets
At the beginning, many businesses find it difficult the 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, the management 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 then you need to revaluate your target setting. It could be that you are ready to scale your business: set challenging targets, put the right resources in place and start growing quickly.
3. New opportunities in the marketplace
By keeping an eye on trends in your industry, you should start to have a good idea when the time might be right to scale. An increased demand for a product/service or changes in customer behaviour which benefit your business could all point in the direction of being able to grow your business quickly.
4. You have a plan for growth
If you are considering scaling up, you should already have a proven 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. It is important you understand which is best for delivering your growth plan.
5. You have a strong, reliable team
People are the backbone to your business. Having a strong workforce in place will make scaling the business that little bit easier due to the support and expertise of good people.
Whether you have two members of staff or 20, people who are dedicated to your business and may have been around since the start will have a good understanding of the challenges that may be faced as the business grows.
However, to scale your business you are likely to need to build your team by bringing in new, high calibre people. They 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. Any disruption could impact on your growth plans.
For further insight or support on scaling up your business, please contact Chris McCourt.