Do you run a small startup business? (Maybe you’re a solopreneur, or maybe it’s just you and a handful of staff members.)
Hopefully your business is showing a profit, but perhaps that profit isn’t as high as you’d like it to be. Maybe you had envisioned having more of a cushion, paying yourself a higher salary, putting more into retirement, etc. So maybe your business is doing well, but you need it to be doing better.
Clearly, it’s time to grow your business, right?
The conventional wisdom says you need to grow your business in order to grow your profit. But that approach to growth ignores a big part of the picture. In other words, if you jump right into the growth phase, you might be skipping a very important step.
Optimize Your Current Business
Before you start actively growing your business, you need to make sure the financial pieces of your business are in good shape. This means doing things like analyzing your revenue streams (to find out their relative profitability), calculating your ROI for different staff positions, improving your cash flow, addressing your tax strategy, etc. Essentially, you want to do your best to improve the financial side of your business before you enter the growth phase.
If you skip this step, and you decide to grow your business without first optimizing the financial side, then you will be magnifying inefficiencies, money leaks, and unsound investments. And you probably won’t get the results you are looking for.
Whenever I work with business owners who grew their business without fixing the financial pieces first, we always have to start by going backwards to undo all the inefficiencies and money leaks. And at that point, the stakes are usually higher (and the cash flow is lower) than if they had taken the right steps before they grew.
So, what should you do to optimize your business before you enter the growth phase?
6 Steps to Take Before Growth
Step 1—Get a clear picture of the financial side of your business. This might require cleaning up your accounting records, studying your financial statements, or familiarizing yourself with the unique cash flow dynamics in your business. Understanding your business finances is key if you want to make good decisions as you start growing your business.
Step 2—Get clarity on exactly what makes your current business profitable. If necessary, you should work with someone to figure out which of your revenue streams are the most profitable (in other words, what are the types of work you do that have the highest profit margins). It’s also helpful to look at the ROI you get from different staff members (as well as different staff roles). Your goal should be to understand the elements that make your current business profitable so you can focus on those elements as you grow.
Step 3—Put processes in place for staff members to follow. Informal processes can be fine if you run a small shop, but they can be a significant obstacle if you plan to grow your business. Start getting specific about the role and responsibilities of each of your staff members (as well as each new staff member you bring on). In addition, you can create written guidelines (or videos) showing what different staff members should do in different scenarios. The goal here is to help the business function without you having to directly supervise every piece of it.
Step 4—Pay for any automations (often software subscriptions) that you need. There are probably automations or software that could be a game-changer for your business (helping you and/or your staff members work more efficiently and accomplish more). On the other hand, when you introduce too many different software applications in your business, you can bog down your staff members and hurt their productivity. Your job as the business owner is to figure out which software subscriptions will actually increase your business productivity. Of course, these systems will cost money, but the money you spend should be more than offset by higher productivity for you or your staff.
Step 5—Address your tax strategy. Having a tax strategy is incredibly important for businesses of all sizes—not just large corporations. A proactive tax strategy helps owners structure their businesses in such a way that they can take advantage of the tax deductions that will reduce their tax burden the most. And if you plan to grow your business, it’s even more important for you to have a proactive business tax strategy. The last thing you want is to grow your business and then end up with a huge tax liability—when this could have been prevented through proper planning.
Step 6—Clear your plate. As you grow your business, you will need more time and mental bandwidth to be able to manage the transition and to supervise additional staff members. With that in mind, it might be a good idea to hand off some of the work you are currently doing. Part of growing your business is learning what personal tasks you can let go of, and it’s best to start that process before you are in the middle of a growth phase.
After You’ve Optimized Your Business
After you’ve optimized the financial side of your business, you will be well-prepared to start growing your business in a sustainable, profitable way. It’s also possible that going through this process will help you start running your business much more profitably at your current scale, so you decide not to grow it! (This has been the case with a number of business owners I’ve worked with, and they ended up with highly-profitable, low-stress businesses that fit perfectly with their lifestyles).
Whatever direction you decide to go, you will be in a much stronger, more knowledgeable position as you take your next steps!
Over to You…
Are you ready to work with a business financial professional who has a long track record of helping owners grow their businesses and make them financially healthy? Through Business Coaching, we can work together to get the financial side of your business in great shape!