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5 Dangers of Fast Growth.

5 Dangers of Fast Growth.

As Small Business Owners we know growth is the name of the game.  But, did you know you can grow too fast?  Here’s a great post warning you about what can happen.

5 Dangers of Overly Fast Small Business Growth Strategies

By Suzanne Kearns
Posted in: Small Business

 

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business growth team plantWhen you start your own small businesses, you immediately start thinking about growth. Maybe you just dream of eventually opening a second store, or you might envision becoming a huge conglomerate or one day franchising the business.

Growth isn’t just admirable – it’s expected. But often, small business owners don’t consider that growing a business too quickly can eventually cause the company’s demise. You can easily find yourself lacking working capital, which is one of the biggest contributing factors to the failure of one in six new small businesses.

You and your business can avoid the dangers of overgrowth. By managing your business correctly and scaling up at a good pace, you’ll guide your company on the path to success. Whether you’re running a home office or a company with many employees, the key is planning.

Make sure you know the five biggest risks associated with sudden, unexpected growth.

1. An Overbearing Debt Loan

If you don’t plan properly for an increase in business, you can wind up taking on far too much debt. Growth takes money, and especially during the early stages of growth, working capital will be low. Many business owners take on massive debt to feed the growth machine, and a vicious circle begins. Increased orders require you to take on more debt, and so on. Too often, the cycle breaks only because the debt becomes so high that it topples the business. Even though more money is coming in, you owe even more and can’t cover debts.

 

For example, if you owned a housecleaning business and suddenly began to get more customers, you’d need to purchase more supplies and probably hire some more help. These positive developments would involve a lot of cash flow, and they can quickly turn negative by eating up all of your reserves. The new business is good, so you give incentives to your existing customers to send you referrals, leading to even more customers. Again, you need more staff and supplies. Perhaps you go as far as adding a company car with your logo to spread the word and support the increased workload.

Your working capital completely depleted, you take the next logical step: getting a loan. At first, it looks like the increased profits will more than cover the credit payments. But while the client list is growing, the debt is piling on more quickly, and keeping up with payments becomes a struggle. The growth was good, but it came too quickly and caught you unprepared as a business owner. Better fiscal management would have allowed for controlled growth based on revenue and profits.

2. Being Unable to Satisfy Your Customers

As a small business owner, you’ll be thrilled to be in high demand. But you need to be sure that you can supply the level of service your customers expect. Personal attention is a key selling point that attracts customers to a small business, especially when you’re involved in an active local community. In the face of unexpected growth, you’ll face the challenge of maintaining quality with the increase in quantity.

Consider the case of the home cleaning service. With a manageable number of clients, you can easily give each one the personal attention that makes your company special. In fact, that personal touch is what got everyone talking about you, spurring the recommendations and the increase in business. While it’s inevitable that the bigger a business grows the less interaction the owner will have with the clientele, unless you manage expectations, some clients may end up feeling put out – and they’ll stop coming to you.

The answer to this problem is – again – managed growth. Calculate how many new customers you can take on without turning your back on the clients who got you started. As you grow, bring on a customer support staff to promptly attend to all of your clients’ needs.

3. Forgetting Your Original Goal

In an effort to expand your business, you’ll be tempted to move into somewhat related – but unexplored – territory. The housecleaning business, for example, could be growing at a comfortable pace when a satisfied residential customer encourages you to bid on the contract to clean a commercial building. It’s tough to resist the prospect of big contracts and new opportunities, but straying from your original business model too quickly can create a volatile situation. While you’re striving to succeed in an untested aspect of your business, you’ll be forced to turn your back on the duties and client base that got you started in the first place.

Entrepreneurs naturally want to try new things, and success often requires taking a risk on new ideas in unproven areas. But you have to carefully consider how much time you can devote to a new plan, and budget accordingly. More importantly, make sure you maintain the safety net of your current customers and business model. If your expansion effort doesn’t pan out, you need to be able to rely on the original concept.

4. Losing Employees

Any small business owner will tell you that your best employees are the lifeline of the business. But when a business experiences quick growth, lines of communication can break down. If you’re surprised by your business’s growth, you’ll get preoccupied with keeping up, and if your employees aren’t ready for it, you’re in trouble. You need to let your employees grow with the business, but training them for management and leadership positions takes preparation. If you catch your staff members by surprise, and you’ll likely lose them. For a small business, losing employees – especially longstanding ones – means losing institutional memory, customers, and money.

In the case of our cleaning business, getting wrapped up in all the new business could easily alienate an unprepared employee in charge of the residential aspect of the business. Without guidance and support, that staff member is left in the field guessing at what decisions are best for the company. Since this employee isn’t trained for management and doesn’t have your insight into the business model, you’re probably going to be unhappy with those decisions, and your customers will be dissatisfied too.

5. Focusing on the Short Term

It’s amazing to watch a company in the middle of a growth spurt. Cash rolls in and business owners think that they’re on the way to the top. Profit and loss sheets look good, and it starts to look like worrying about bills and cutting  business operating costs and expenses will be a thing of the past.

 

But a dangerous trap lurks in these bright days. In the search for good news, you can make the easy mistake of looking only at short-term profits. Instead, consider the plans that you’ll have to implement to sustain long-term growth and success. Don’t lose control just because you see a few good weeks and months in store. Making rash decisions to boost one day’s profits can cost you something – your cash reserves. And if you’re unprepared, those good days will suddenly end.

Remember that company car with the cleaning service logo? It may have been a little premature to have taken on the expense of a brand new car and decal work. Celebrate your success, but don’t overindulge.

Final Word

For your small business to succeed, the name of the game is growth. But growth is very complex. It’s hard enough to grow in the first place, so make sure that you handle it properly when that success comes. Keep your eye on three areas of the business: your systems, your staff, and your cash reserves. Successful growth requires taking the time to plan and prepare to sustain all three as your business increases.

Why You Need a Business Plan

Why You Need a Business Plan

If you are a small business owner, I’m sure you’ve been told you need a business plan.  You may have even looked into it and decided you didn’t have time to fill out a 50 page template with charts, graphs, and spreadsheets.   
Make no mistake, you definitely need a plan.  But, you can start out simple (think one page) and then build on it.  Here’s a post that can get you started. 

Why You Need a Business Plan (And the Best Style for You)

 

 

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Why You Need a Business Plan (And the Best Style for You)

This is the first in a four-part series by Hal Shelton, SCORE small business mentor and author of Writing a Successful Business Plan. Topics include why you need a business plan (and the best style for you), four sections every business plan must have (and why they’re important), when is the best time to revamp your business plan, and creating a business plan for a nonprofit.

Running a business without a plan is like running down the street with a blindfold on. Abusiness plan removes the blindfold, creates a map, and prepares you for the certain bumps in the road.

In this post, you will discover what a business plan is, why you need one, and what style is best for your situation.

What Is a Business Plan?

A business plan contains five key elements:

  1. Business goals
  2. The reasons why these goals are attainable
  3. A plan for reaching those goals
  4. Data backing the uniqueness of the products and services to be sold
  5. Supporting information about the organization and team attempting to reach those goals

But it is much more than a document: It is a process to test ideas to determine if they are feasible and financially attractive. During the process, you develop a consistent set of messages, based on facts and analysis, which can be used in discussions with customers, funders, board members, advisers, vendors and employees.

While you may think the only goal of business plans is to seek funding, ultimately, a business plan is written for yourself — to help you set goals, decide whether to start or grow a business, and develop a compelling message of why you will be successful.

As a small business owner, you are probably working 60 to 100 hours a week and still not getting everything done. If you are working this hard, make sure it is worth the effort. Again, this is where a business plan comes in. For example, if you forecast earning $20,000 a year, is this good news? It is good that the number is positive; however, if you live in a large city, have family financial obligations, are paying off bills and saving for retirement, and plan to make this your full-time activity, it is unlikely you will be satisfied with $20,000. Wouldn’t it be good to know this before you invest too much?

What’s Your Style? Finding What Type of Plan Is Right for You

Business plan styles range from informal, back-of-the-envelope sketches to 30-page plans with illustrations and exhibits. Which style you choose depends on a number of factors including are you seeking funding, are you starting a new business or growing an established business, is the business complex and needs much explaining, etc. Common to all styles is a clear message.

Plans for Existing Businesses

Start with a short plan, emphasizing mission and goals, to ensure the venture/project is headed in the right direction for the next year. If you are planning to grow your business, focus on markets, products, and services, in addition to having sufficient resources. If you are solving an operating issue, focus on that particular matter, such as staffing, cash flow, operations, vendors, etc.

For example, a business that is focusing on increasing sales may determine after talking with its customers, looking at its competition, and conducting research, that it needs to enhance the awareness of its products and services in the marketplace and, in particular, the online marketplace. In my book (www.secretsofbusinessplans.com), I share an all-graphic, brief business plan that is ideal in this situation.

If you’re seeking funding from your current bank, use a medium-sized plan in the 7 to 15-page range. Talk with your small business loan officer and see what they require from someone the bank already knows.

Meeting Expectations

Most business plans start with an executive summary and end with the financial statements. In between are sections that describe the business idea operationally. You have the flexibility to arrange this discussion in a manner that best describes your company. However, if the format is too different from what your audience is used to, they may find it difficult to read your plan. Make it organized, clear, and purposeful.

It helps to know your audience and what information they need to act favorably. For example, a customer wants to know you will provide quality products/services and will be around to provide maintenance or upgrades. A vendor wants to know that you will pay invoices on time and be a repeat buyer. A banker wants to know how much money is requested, what it will be used for, how long the funding is needed for, and reasonable projections that you will have the resources to repay the loan in full. Hence, while you may focus on sales, the banker will focus on cash flow.

Usually you will not be in the room when your business plan is read, so it needs to speak for itself and reflect positively on you and your business.

Be able to explain the following clearly and succinctly:

  • What customer problem you are solving, and why your solution is better than current alternatives; sometimes called the value proposition
  • What tasks are necessary for the business to succeed
  • Most important, why you will be successful

Key Lessons

• A business plan is primarily written for yourself. However, it should not be about you — it should be about the market and your customers.

• A business plan is both a document and a process.

• Business plans need to be tailored to your situation and kept current.

• Design your business plan in a manner that best explains your business idea.

• Know your audience and what information they need to act favorably.

• The message is more important that the style.

Next Steps

  1. Note the reasons you are considering writing a business plan.
  2. Describe your audience, what you would like them to do after reading your plan, and what information they need to favorably take that action. The audience could be you, a banker, an angel investor, a key vendor, a potential employee, a contracting official, a key customer, etc.

Next month, we will look at four sections every business plan must have (and why they’re important).

Hal Shelton’s business planning skills were developed as a certified SCORE small business mentor, corporate executive, nonprofit board member, early-stage company investor, and author of The Secrets to Writing a Successful Business Plan: A Pro Shares a Step-by-step Guide to Creating a Plan That Gets Results. Suggestions for additional topics are welcome; email Constant Contact or Hal directly from his website:www.secretsofbusinessplans.com.

Why You Need an Operations Manual (Even if There’s Just You)

Why You Need an Operations Manual (Even if There’s Just You)

So you’ve gone into business for yourself.  Congratulations!  I’m assuming you’ve written a business plan.  Everyone says you need one.  Here’s a different question, have you written your operations manual?   
“Huh?” you ask.  “What’s that?”
Read this excellent post explaining what an operations manual is, and why you really do need one.  (Hint…it’s not as intimidating as it sounds)

How To Create An Operations Manual For Your Business

Gary

October 11, 2011
OperationsStartup

Create operations manual for businessHaving a written plan is important to any business, big or small.  Putting the standards you set for yourself and your business on paper will not only help you create consistency for your business, it will help you to avoid a pitfall that many small business owners face;  Being able to maintain the quality the business owner has set for the business as they grow and hire new employees.  

Too many times a business with a rock solid level of service starts to slowly degrade as they grow and new employees are added to the mix.  A written operations manual will help give you the discipline to stay on track as your business grows. Most likely when you were first starting your business, everyone was telling you that a written business plan is a must. You need to get your vision, your plan and financials on paper so you (and your bank) can see that you have thought things through and have a clear plan of how your business will make money.  Once your business is actually up and running, how many times do you think you will refer back to your business plan?  If you are like most people, the answer is somewhere between rarely to never. A business plan is just that, a plan for your business.  It’s an overview of what your business is about and how it will make money.  It’s your vision of how you see your business now and in the future.  While this is very important, you also need a written plan on how you will run your business, day in and day out.  This is where a written operations manual becomes so important.

What is an Operations Manual?

An operations manual is something different for every business.  For some it may be a 1000 page, phone book sized manual, detailing every little detail of the business in a step by step guide.  For others, it may simply be a series of checklists that are stored in a binder or as an online document. The only requirement is that you have some sort of written plan that you and your employees can reference when they need to know something. While many operation manuals will be chock full of details such as the company’s mission statement, values, organizational charts and sections for each key component of a business, you do not need all of that.  At least not when you are just starting out.  I think this is the misconception that many people face when it comes to writing an operational plan for their business, it does not have to be large and comprehensive, it just needs to be useful.

“Planning is an unnatural process; it is much more fun to do something. The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression” (Sir John Harvey-Jones)

Why Do You Need an Operations Manual?

There are lots of reasons for having a written operational plan for you business, the ones I feel are most important are: Create a standard for your business.  For the most part, customers would prefer consistency from a business over random and inconsistent acts of awesomeness when it comes to customer service.  If the owner gives a customer one experience but your employees give that same customer (usually not as good) another experience, it will confuse and diminish the quality of the business in the eyes of that customer. A written plan will make sure everyone knows what expectations you have set for your business and employees. Better trained employees.  If you are like most small business owners, you probably walk new employees through every step personally, explaining what needs to be done and what you expect from them.  Do you do the same exact thing for every employee that you hire?  Probably not.  What will happen if your manager needed to start training new hires? Would the training be the same? A written training plan will ensure that all new hires are given the same information to help create consistency among all of your employees.  It will also allow you to delegate some training responsibilities to other employees without diminishing the impact of that training. Easier to scale your business.  To take a quote from Michael Gerber in The E-Myth Revisited, “How is it that McDonald’s can deliver on it’s customer promise in every one of it’s 20K plus restaurants, each and every day, when a small business owner can’t do it with a single location?”  You can say alot of things about McDonald’s but the one thing you can’t say is that they are inconsistent. When operating multiple locations, or even franchising your concept, it’s impossible to deliver on your brand promise without a comprehensive operational plan in place. Make your business more valuable.  One day, for various reasons, you may need to sell your business. Telling a prospective buyer “This is the way I do it” and “This is what I tell my employees” is much less valuable in the eyes of a prospective buyer than “Here is the way we operate our business”. Nobody is going to want to buy the ideas in your head, they want something tangible, proof that your business is an actual business, not you running around telling everyone what to do. An operations manual will be proof that there is an actual business going on here, something that can run with or without the owner present.  Now that is valuable.

“Reduce your plan to writing. The moment you complete this, you will have definitely given concrete form to the intangible desire” Napoleon Hill

What Should You Put In Your Operations Manual? The most important thing when writing an operations manual is for it to be useful, otherwise it won’t get used.  Start with the information that you will need to reference the most and would like to keep handy.  Whenever I help to create a written plan for one of my clients, I usually start with the following:

  • A contact list for all employees, vendors, emergency numbers, insurance company, landlord (if you have one) and anyone else that may need to be contacted in case an issue arises and the owner is not present.
  • A series of checklists on the basic functions of the business.  Create checklists for cleaning, opening/closing the business, supplies and any other task that requires easy and repeatable steps to follow.
  • How to guides.  Create simple “how to” guides that you and your employees can reference in various situations.  If the POS (Point of Sale) machine crashes on you in the middle of the day, do your employees know what to do?  Create a quick guide outlining the steps on what they should do if this should happen.  What if an employee needs to call in sick?  There is an injury in your store?  Write simple 1-2 page guides on what needs to be done in each case.
  • Policies.  While i’m not a huge fan of policies (i know they are needed, they are just not always used for the right reasons), outline your customer policies (or promises if that’s what you call them) so all of your employees are on the same page. Refund, exchange and payment methods are all good policies to start with.

Once these sections are complete I like to concentrate on the daily operations of the business.  I start here because this is (hopefully) the first part of the business that you can start delegating to others.   Just like in the “how to guides” above, start creating “mini guides” of your daily operations.  It may include ordering procedures, daily tasks that your manager must ensure is completed every day or anything else that is relevant to your business that needs to be done on a daily basis. If you only created the above sections for your business and stopped there, you should be proud of yourself because most small businesses will go their entire existence and never even get that far. As you can probably see by now, a written operations manual is made up of a series of short sections that are strung together to create a bigger manual.  It’s actually very easy to start creating one, just start with the sections outlined above and you will be on your way to having your own written plan for your business.

Resources

Creating your operations manual.  There is no easier way that I know of to create training guides than with Screen Steps. One of the biggest headaches in creating a training manual is inserting screen shots and images, if you use Microsoft Word you know what i’m talking about.  Having to take a screen shot, download the image, insert it in the document and then re-size it is a major pain and consumes alot of time. Screen Steps let’s you  snap a screen shot of your computer screen and automatically inserts the image into your document in about 3 seconds without having to download the image first.  Screen Steps is the reason that I actually enjoy creating how to guides for this blog. Hosting your operations manual online.  I’m a fan of Google Apps and use it for all of my businesses.  What I do is upload the finished documents to my Google Docs account and then create a password protected intranet site using Google Sites to host the manual. It can then be easily accessed by any employee from any computer.  Both products come free with a Gmail or Google Apps account.  I hope to come out with a video tutorial shortly outlining exactly how to set this up so stay tuned. Three Ring Binder.  After I upload each document, I print a copy to place it in a three ring binder which is left in a spot where employees can easily reference it when needed.  I use page inserts to keep the pages from tearing and use tabs for easy reference.

Start Creating Your Manual

I have outlined why and how to start creating your own operations manual for your business.  As you can see it’s easy to get started, you just have to start. Making it relevant to your business and employees is the key. Your operations manual will never be complete, it will always need revising so don’t think of it as something you need to do all at once.  When you find things that work for your business, take the time to write them down and add them to your manual a little at a time.  It should grow and change over time,  just like your business.  I usually take a few hours quarterly to update and revise my manual. If you have questions about getting started, shoot me an email at gary[at]3bugmedia.com.  I respond to all email requests.  Cheers.

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