Preparing for the Growth phase
Welcome to the next episode in our series of Eddie Senatore Talking Business, based on our monthly two-page newsletter. In this third installment, we look at how a business passes through the survival phase, and moves successfully to the next phase, growth.
You’ll be dealing with similar issues as you did in the survival phase, but now you’ll need to deal with them on a more sophisticated level. The beauty of the growth phase is that you can devote more time to management and less time to actually doing the labour yourself, but without a smart grip on the major issues, you could stop your business in its tracks.
After growth, you’ll be looking to another two phases, namely, expansion, and maturity.
The three major issues facing a business in the Growth phase
- You need to look into controlling your sales. Where your house-building company built 1 house, is it going to scale up into building 4,8,12,or 24?If the house-building business gets sales by undercutting the marketplace, scaling up high means handling skinny margins on each sale. If you’re not very careful here, this might mean you’re not covering your fixed costs, which could mean overdraft and interest payments.Make sure you control how your sales translate to cash flow.
- Next, you need to attack overtrading before it hits you. While having more work is great, you’ll be needing more supplies and staff to deal with the demand, meaning a greater capital investment. This could snag you into overtrading and expose the company to losses. For example, if our invoicing isn’t timed right, you could need to get a steep loan to pay your suppliers while you wait for your clients to pay.
- Lastly, you need to deal with your supply of inputs: Now that you need to buy more stuff to serve your clients, you have to look into how cost-effective your acquisition regime is. Do you buy in bulk? Can you get a better price somewhere else? Do you stay with the same supplier, where you’ve built up a relationship?
What if you get into a new product line, building a different style of house to draw new customers? You’ll need more technical staff and expertise to deal with that demand. You need to get a grip on your limits.
Are these issues going to blow out your business? If you don’t deal with them in a sophisticated way, they just might.
Growing so you can expand
While it’s tough to deal with these new problems, getting a grip on them means developing a sophisticated understanding of the workflow of your business. Doing well in this phase will set you up nicely for excellent growth.
Now that you’ve grown the business, join us on our fourth episode, where talk about the next phase, expansion.
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