The Bureau of Labor Statistics asserts that almost half of small businesses fail within five years. While it’s tempting to attempt to grow your business using borrowed cash, unforeseen circumstances, such as a global pandemic, can cause financial shortfalls leading to closure.
As a result, some people prefer to stay small, as there’s little risk involved. However, expanding your small business shouldn’t be risky if you do it right. If you’re wondering how to get it right, here’s how to use small business loans to scale your mature small business.
Reasons why small businesses fail
You can’t keep winging it in business. Most businesses that fail don’t have a clear road map to help them stay the course in the murky waters of the business world. That includes:
- Marketing plan
- Competitor and customer base analysis
- Unique value proposition–what makes them different from the competition
Secondly, while the business owner may have the experience to handle a small business comfortably, their skills may not be adequate to handle tasks like managing several employees and handling accounting when the business grows.
Finally, the main reason many businesses fail is a lack of cash to keep the business running (working capital) and the pricing of products. Most business owners don’t have a clear idea of how much they need to set aside for daily operations and how to set the proper pricing to stay competitive while taking care of all other expenses.
Importance of scaling a small business
The number one reason for scaling is efficiency. You will plan all eventualities that come with the changing landscape, ensuring effective use of resources.
Scaling your business allows you to hit production requirements sustainably, therefore remain competitive.
Scalability means streamlining and adapting to the invisible market forces. The scalability plans mean your business is ready to tackle economic changes well into the future.
How people know when it’s time to scale their business
Here are the top five signs that it’s time to scale:
You turn down great opportunities
When the amount of business overwhelms your workforce forcing you to reject some great prospects, it’s time to scale up.
Workers feel ready
If your workers are eager for new challenges to further their career development and get a fatter paycheck, that’s a clear sign for scaling.
Increased network
Before you scale, find out how many customers you have. If the client base is growing so you don’t have to rely on a handful of customers, time is ripe for scaling.
Strong cash flow
Repeatable sales leading to consistent cash flow and profitability is a sure sign you are ready.
Comfortably exceeding goals
Once the job becomes too easy, it means your workforce is underworked. Time to stretch your resources to maximize profitability
Avoiding challenges of expanding your business
Expanding your business is exciting, but it has its challenges. Financial management is perhaps the main challenge for expanding businesses. Ensure you set aside enough cash for the growth plus any unforeseen circumstances. Alternatively, opt for small business loans to keep the company chugging along.
Similar to the first point, it’s tricky planning for something you have no prior experience with. Do your research on what needs doing and then factor in the ever-changing market conditions.
It’s impossible to manage an expanded business as you did your small business. That could lead to management inefficiencies that might mess up and damage your reputation. When you struggle at a task, outsource to improve management.
Scaling means more work–not everyone will be thrilled. One of the best ways to achieve targets is to motivate your workers to embrace the challenge. That could be through clear communication or salary increases.
Advice and tools to improve your businesses
Automation
One way to reduce inefficiency and payroll is by automating everything you can, such as sending receipts and utilizing task management software.
Networking
You can’t scale if no one knows about your business. Get the word out about your awesome products–it could be through word of mouth, social media channels, or sponsored events.
Plan ahead
Strategize and set clear goals, then make a clear road plan that will provide pointers to hitting your targets.
Communication
Embrace a culture of open communication as it encourages consultation and communal problem-solving.
Final words
You may fear taking a loan to grow the business as the market is unpredictable, so it’s less risky staying small. However, scalability is not that scary if you have strong cash flows, a broad customer base, and more business than you can handle.
That said, plan for the expansion, prepare your employees to expect more work, and get your finances ready, or get a loan if need be. Check out Camino Financial for more info on small business loans.