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Is Your Business Scalable? Prepare for Growth!

Author: Larry Chester, President

Scalability is the key to growing your business. How can you serve new customers, additional inventory and manufacturing space? Can you do it now, or do you wait and hope you don’t lose customers? It’s a balancing act, and there are no easy answers.

Cash Needs – Understand the cash needs of ANY expansion plans. Some plans require long-term commitments. A cash flow forecast showing each expansion opportunity will alert you to upcoming problems. If you run out of cash – everything stops. Plan so that you know how much cash is needed not just today, but down the road.

Inventory – If you don’t have the inventory you need, you lose customers. If you are buying inventory, be careful you don’t end up with products on the shelf, collecting dust. Try to arrange for Just In Time deliveries from your suppliers. If you can’t, then stock the products that have the fastest turnover. Idle inventory ties up cash.

Plant – This is a long-term commitment. Consider renting additional space. Short term leases are expensive and stretch logistics, but they’re less risky. Some companies that commit to larger facilities end up with a boat anchor around their necks. Wait for sustained sales before you commit to larger facilities. If your growth is explosive, don’t select a space that you will quickly outgrow.

Software – Use their existing software fully. Be sure you need additional capability. Will new technology solve your problems? Be aware of the full cost, not just the initial purchase. Include implementation, ongoing support and maintenance fees over the coming years. What will your needs be in 5 years? Buy software that meets your future needs as well. That may be more expensive now, but will save you a second implementation in a few years.

Personnel – Your current staff is overloaded. Is this a bump in the road? Full time hires are an ongoing expense. If you hire someone you don’t really need, you could bear the costs of unemployment, separation pay, etc. Hire a temp to fill the gap till that full-time person is really needed.

Plant Equipment – When thinking of new equipment, do you need capacity or features? Even if your current production costs are higher, there is still the benefit of not having that capital payment. Can you modify the old equipment to extend its life? If not, maybe you’re ready.

Expansion is inevitable for any growing business. Making strategic decisions to expand your facility, plant and staff at the right time is a decision that needs critical evaluation.


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