It's often said that a business is either growing or shrinking and growth is critical to maintaining a healthy profitable business. As you see the potential in your business, you begin to wonder what it would take to make your business larger and stronger. As you set your sights on such expansion, it's important to set goals to make sure that you are not only in a good position to grow but that the tough choices you make during this time of flux are on-point.There should be little fear of unpleasant surprises, as proper care and preparation keep you well informed and ready to deal with the inevitable difficulties.So how do you know when you are ready to grow? What goals can you set and monitor to ensure you are prepared and able? This article covers some key goals and tips that will lay the foundation for growing your business.
Profits and Profit Margins
How well is your business truly doing at this time? Are you able to set aside some of the money your business earns?While it may go without saying, for a business to succeed and grow, profit is a necessity. Profit is always critical for a healthy business, but when it comes to expansion, enough profit to set money aside is even more important.Coming out slightly over the even mark seems safe, but that won't allow the business to flourish. Profit needs to be high enough to handle both unexpected expenses and the expansion process. If no money is socked away, your growth can become stagnant.Of course, you can (and often should) look at other financing options to fuel your business growth, but if you can't show a profit at your current state, it can be risky to take on debt in hopes that you will show a profit after expansion. In the end, you need the data to help you make the tough decisions.It is vital to calculate profit margin to maintain a fully functioning, healthy business in general – but most importantly for growth, profit can give you both the indication that expansion is viable, but may also give you the funds required to grow.Explore our guide on calculating gross and net profit margins.
What are your earnings? How consistent is your revenue on a monthly basis? Quarterly? Yearly?Of course, profit is critical to maintaining a healthy business, but if you don't have enough revenue to cover your costs and set some money aside, then your business will stall.When it comes to income from sales and services, it is important to set a goal. Goals should take in to account what is necessary to thrive, and then some! By setting a goal for each month and quarter, you are left with enough funds to purchase necessities for your business, as well as funds for expansion.Revenue goals are set to provide enough capital to grow, not just break even with a minimal profit. If your business is not reaching the intended mark, analyze what areas are affecting your overall revenue. Number one is often your longer term sales pipeline, up next.Here's a refresher on revenue vs. profit vs. cash flow.
Once you've set your revenue goals for your business, you need to find a way to deliver on those benchmarks. How will you reach the levels of revenue you need and also make sure the sales have ample profit?Your revenue and profit goals now become the benchmarks you need to reach in your sales. Depending on the type of business you are running, there may be a straight line between your revenue goals and your sales goals, but for many businesses, it isn't quite that easy.If you are pitching larger scale projects or large orders of your product, you aren't likely to close every deal. In this case, you need to be in the mix for deals that far exceed your revenue goals.It can be useful to look back over the past year (or longer if you have solid data) to determine what percentage of deals did you land of the bids you submitted? These numbers can give you an indication of the level of sales you need to be pursuing meet the revenue targets you've set.ie. Your sales goals could be your revenue goals plus 35%. That will give you solid targets that you will need to reach to meet your revenue goals. But, beware, that you are not cutting your margins too tight or potentially even dipping into the red on a bid to try and land the sale. That is a dangerous game that could bring in revenue and cash flow but will harm your business over the long term as you are chronically bleeding.As an aside, if you are winning an extremely high percentage of your bids, you make want to review your pricing and ensure you are charging enough for your goods or services.Once you've set your sales goals, it is essential to keep a close eye on your progress to ensure that you are not only bidding on enough work but your closing those deals at the rate you expect.It's also important to predict well in advance the potentially slower times of the year for closing deals so that you are meeting your yearly sales targets through increased sales during the high times.
Preparing for Expansion
Are you ready to expand? How much money will it take? Will the expansion be profitable soon enough?Before you consider expanding, take a very realistic look at your numbers and make sure that the opportunity is there. Sometimes there will be hidden dangers in an expansion. Even if your current sales are generating solid revenue and a healthy profit margin, you need to be confident that your processes will scale, and the market is large enough to fuel the increased sales you will require to cover your increased costs.Of course, there are situations where a business can not only produce more revenue but a much higher profit margin after expansion due to increased efficiency, purchasing power, access to larger deals, etc. But for a small or medium business, there can be a gap in the data that can hide costs and a risk that can be easily overlooked.
Common danger zones when expanding:
How many new employees will be hired? Most importantly, how long until the new employees are generating revenue and profit? What if they don't generate what you expect?When expanding to a new location, how long is the lease you are signing? What if you need to leave the location sooner than expected?When purchasing new equipment, are there hidden costs to get up and running? Maintenance costs? Additional training costs?The more well-managed your planning process is, the more smoothly the expansion and growth process will be. Most importantly, expansion will nearly always cost more than you planned, take much longer and have a few unexpected twists. Will you be prepared?____
Forecast Your Cash Flow Diligently
Forecasting your cash flow and sales pipeline like a hawk is vital to ensuring you can grow, avoid deadly cash crunches, and have capital on hand when necessary. Learn more about Dryrun and how it can help you prepare for growth, evaluate your options and deal with the unexpected.