Scaling up your business: When is it the right time to expand?

The urge to convert and scale up a small business to a medium to large enterprise is one of the most common goals among business owners. However, contrary to popular belief, scaling up a business is not just a goal for most entrepreneurs, but also a necessary step to running a business successfully.

This is according to Christo Botes, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, who says that many entrepreneurs incorrectly believe that their business will grow organically, and that the necessary resources can simply be added to match current demand.

He explains that once a business has grown to a certain size, the owner must consciously choose to scale up rather than simply reacting to a growing market share.

When facing this cross road, Botes says that the entrepreneur should first consider the true reason for wanting to scale up before doing so. “Businesses often want to scale up to become self-sustainable, but starting this process without the necessary preparation and research can be detrimental for a business, as growing too fast can backfire.

“Upscaling a business is a lengthy procedure that involves complex introspection at almost every level. Business owners should be cautioned against the temptation to grow too quickly, and should aim rather to grow sustainably to ensure that the business continues to be a viable operation. As part of this sustainable growth there should also be a good balance between the management of regular operations and the expansion.”

Apart from the various processes and measures that need to be put in place to grow a business, it is crucial that business owners also adapt their mind-set. “Small business owners need to stop thinking and acting like a small business, but rather as a medium-size business and be cognisant of the fact that forward planning and measures – from anticipated turnover and management structure, number of jobs that can potentially be created and improving business processes – will need to be addressed in order to achieve the business results needed to run and maintain a larger scale business. Planning for revenue growth is a good example of the necessary forward planning that needs to be considered, as growing revenue by 10% is considerably easier when you have an annual revenue of R10 million in comparison to turnover of R30 million.”

Botes adds that entrepreneurs need to carefully assess their execution strategy. “While a brilliant product or service offering can increase competitiveness and grow market share and revenue, a clear and achievable execution strategy will ensure ongoing success. A business owner will need to deliver on his/her intent of taking the business from a small operation to a mid-sized business.”

Cash flow is another aspect, says Botes. “The business owner must have a clear idea of cash flow and have accurate forecasts in place. With growth and expansion, larger volumes of money and transactions will need to be closely managed.”

Most importantly though is the need to return to the original vision of the business. “Having a clear vision in mind makes internal and external changes less distracting from the broader business goals,” concludes Botes.

Botes provides four key aspects for business owners to keep in mind before committing to an expansion plan:
  1. Set goals: Business owners should create a list that details why they have made the decision to scale up their business. These should also be linked to the business’ goals, with at least one overall long-term goal (achievable in 15 – 25 years), as well as short-term goals (achievable in 3 – 5 years) which will serve as tangible measurables for the long-term goal.
  2. Have an implementation plan: This plan should list actions that must be taken with responsible persons allocated to each action. Empowering the team of staff to manage their own tasks and responsibilities is vital, and business owners should take heed to equip all staff to effectively work toward one, collective goal.
  3. Analyse the finances: Before embarking on an expansion journey, entrepreneurs are advised to increase their financial reserves. Each business’ cash conversion cycle should provide a good indication of how long an investment takes to convert into a return – the shorter this timeframe, the better.
  4. Communicate: One of the most important aspects during an upscaling journey is to communicate with staff throughout the process. Business owners should keep the whole team informed of the vision, strategy and steps of the process. This will ensure that all parties feel involved and are encouraged to work towards achieving this one common goal.