Nurturing your business growth takes time and dedication. Cultivating the demand needed to expand profit takes intention. The downside to this invested time is the cost. You can lose out on profit due to rising costs in manufacturing, production, talent acquisition, and more.
Failing to plan for the long haul could put your business in with the nearly 50% of companies that fail by their fifth year — which would be devastating after all the time, money, and energy you invested into your business. To keep that growth moving upward, you need to strategize for expansion costs and expenses.
For continued success, companies must be well prepared to handle the rising costs of growing demand. If you’re willing to risk expansion, you need to “do your homework” through market research to ensure you’re creating profitable demand for goods or services. Fortunately, there are a variety of tools and strategies you can use to manage, and hopefully overcome, these growth challenges.
Define Your Objectives
Whether your business is new or already off the ground, you need clear objectives to expand. Steady growth happens when goals are set from the beginning. There are a few different goal-setting techniques you can apply:
- SMART goals: Specific, Measurable, Achievable, Realistic, and Time-bound goals to keep your objectives simple and clear.
- HARD goals: Heartfelt, Animated, Required, and Difficult for creative, emotive, and hard-to-motivate individuals and groups.
- WOOP goals: Wish, Outcome, Obstacles, and Plan for habit removal and problem resolution.
You can employ a few goal-setting techniques to mitigate ambiguity in your various growth objectives.
There are plenty of other strategies you can hack for measuring success, too. Part of establishing clear objectives requires clear key performance indicators (KPIs). Popular KPIs include:
- Financial metrics: Monthly revenue, quarterly expenses.
- Customer metrics: Satisfaction, lifetime value, and retention.
- Process performance metrics: Defective product totals, the total time to produce goods or services.
Objectives aren’t effective without proper measurement. If you cannot evaluate your company, you cannot track which objectives it meets. Without defined KPIs, you can’t plan for future growth and expansion costs.
Develop a Growth Strategy
You should also develop a growth strategy, which will help outline the steps you need to take to meet your goals. It’s an actionable plan that details exactly how you will grow your business.
For companies looking to expand, vague or underdeveloped strategies increase the chance of failure and wasted capital. If you haven’t thought about what it will take to accomplish your goals, you’re far more likely to make poor decisions for your business. For instance, you may end up hiring underskilled staff or developing a product for an overly saturated market. Both of these are possibilities of not planning concrete action steps.
Common growth strategies include:
- Strategic partnerships with other organizations;
- Gaps in the market;
- Product development opportunities;
- Boosting digital marketing presence;
- Finding new tools and resources.
Any one of these strategic elements should support your business’s growth in a specific way. You can use multiple of these elements in tandem for an even greater impact. Proper research, metrics, and a thorough understanding of what you need to grow will result in a higher chance of success.
Analyze Cash Flow
Cash flow analysis offers plenty of valuable information for your business. Your cash flow will dictate where your money goes for your expansion expenses. If you don’t know which aspects of your company are the most and least profitable, you don’t have the information you need to safely grow your business. You could be hemorrhaging money where you can’t afford to, all because of inaccurate cash flow records.
Follow a few steps to identify potential problems early on. The sooner you plan protectively instead of reactively, the better protected your business’s future is. Analyzing payables and receivables can reveal major gaps in expenses and revenue.
Consider this outline to analyzing your cash flow:
- Name every single income source, deducting taxes, expenses, and interest.
- Determine costs for inventory, accounts payable, deferred revenue, and other liabilities.
- Examine operating, investing, and financing activities to see where money currently is.
Find the patterns in your cash spending. If you find certain funds tied up in debt or investments, determine how much you can allocate elsewhere. If you budgeted a certain amount of dollars for a particular campaign and it's not generating the anticipated profit, evaluate and reassess your efforts. Seeing these financial patterns will help protect your business from landing in that high percentage of five-year failures.
When did you last assess your current talent? If you began with a larger team to balance startup demands, you likely need to reexamine your people. Often, fear of not having enough staff to launch your business can result in hiring too many people. This can result in unnecessarily high expenses, as well as bored and underperforming employees. As businesses scale up, they streamline processes, potentially reducing the need for extraneous employees.
If you have overstaffed your business, there are some key indicators. If sales are down and your labor costs remain high, it may be time to lay off some new hires or lower-performing individuals. If you also notice employees have too much free time or there’s not enough work to go around, this is another clear sign of overstaffing.
However, you shouldn’t under-hire, either. Avoid consolidating roles and overloading your devoted staff. It’s all too easy to lose employees to burnout. You’ll also need to spend more time and money to find and hire new employees.
Focus On Customer Retention
If you’ve invested too much money in growth, attending only to new consumer demand, you may be forgetting some important people. Long-term brand loyalists are the bread and butter of businesses in almost every industry. Neglecting your old customers for the new can compromise revenue. With only 18% of companies focused on customer retention, yours has plenty of opportunities to stand out to customers — new and old.
Return and repeat customers often deliver a higher ROI than newer customers. Consider the time required to acquire leads and onboard new customers. Your expenses for new customers are much higher than for returning ones. You can elevate the customer experience for better retention by using various tools, such as:
- Customer feedback loop: Build trust with high service standards, empathic and frequent check-ins, and emphasize convenience when possible.
- Customer loyalty program: Customize rewards and incentives based on growth goals, and target offers with customer data.
- Marketing automation: Prioritize customer re-engagement using streamlined processes, artificial intelligence, and machine learning.
- Personalized communication: Create communication calendars based on targeted segments (macro or micro) with personal touches via dedicated service representatives.
These are merely a few of the many tactics you can employ to keep long-term customers happy and loyal. Dealing with new demand is great if your current customers are already referring to your goods or services.
Rapid growth may have forced you into accepting less-than-favorable loan terms. If you refinance these loans to lower monthly payments, you can rededicate funds to rising expenses. More flexibility in your budget allows you to pivot campaigns and leverage certain budgetary requirements more quickly.
Follow these steps if you’re considering this solution:
- Determine your outstanding balance(s), remaining payments, final payment date, and current interest rate.
- See if you’re eligible based on business and personal credit, duration of operation, debt-to-income ratio, debt-service coverage ratio, annual revenue, and profit.
- Compare lenders for better loan amounts, interest rates, additional fees, and collateral options.
There are many types of loans you can refinance (and some you cannot). Check with your bank, lender, and CPA for the most lucrative choice.
Avoid Excess Spending
If you’ve conducted a cash flow analysis, you’re aware of how easy it is to overspend. Whether it’s with your workforce, product development, marketing campaigns, or something else entirely, you can’t afford to waste revenue. If you feel that your business is less profitable than it should be, check your spending.
With a cash flow analysis, updated business plan, defined objectives, and clear growth strategy, you can see how money flows in and out of your operations. It’s better to reduce spending through cash flow analysis instead of blindly shedding cash on unanalyzed expenses. For proactive decision-making, you need to know where and how your cash is flowing. If you’re trying to protect your business and your people, avoiding excess spending is the simplest way.
Be Aware of Liabilities
As you grow your business, you will become more susceptible to different liabilities. Without understanding your liabilities, you expose your business to litigation. As more employees focus ib self-advocacy and supply chains grow more complex, there’s an increasing risk to the employer.
Keeping track of your liabilities is easily worthy of a whole team or department. Even if you dedicate a few experienced employees, you’re likely in need of a software tool to integrate processes and track data. Investing in legal management software can save your company (and team) valuable time while protecting its future.
Litigation isn’t the only risk your business faces, either. Mitigating risk involves lots of evaluation and time-consuming judgment calls. A trustworthy, cost-effective risk management system can protect your business from these additional threats and challenges, too.
Utilize AI Platforms
Artificial intelligence can be used for a wide range of business activities, including marketing campaigns, sales teams, and workforce management. Aside from being efficient and cost-effective, AI can also improve productivity across the board. It can automate rote tasks, allowing employees to focus on completing work that can’t be automated.
AI continues to grow in popularity, which means there are more solutions available now than ever before. You can likely find useful AI tools to meet even the most specific of your needs, such as risk analysis or claims administration. Explore different AI tools to elevate essential operations, mitigate rising costs, and meet new demand.