When it comes to growth, the natural focus is on selling more. However, when it comes to scaling a business, it’s not quite as clear to see where the focus should lie.
That’s because, while the two terms are often used interchangeably, there is a difference. ‘Growth’ refers to increasing revenue at the same time as increasing resources. As you sell more, you utilise greater resources to manage the demand.
‘Scale’, on the other hand, refers to increasing revenue at a quicker rate than you’re increasing resources. It’s hugely beneficial. But it’s important to remember that scaling too quickly can result in overtrading; a major risk to any growing business.
What is ‘Overtrading’?
Overtrading occurs when businesses boost sales and increase revenue beyond what they’re able to handle. It may be that there isn’t the necessary stock to satisfy the number of orders coming in. It might be that a business doesn’t have the cash to handle the additional demands that come with growth. Or it could be that there’s an increase in workload that cannot be managed effectively by the existing team.
Whatever it is, overtrading can be devastating. It can result in low profit margins, lack of cash flow, excessive borrowing, loss of supplier support, and reduced customer trust. Ultimately, overtrading could contribute towards business failure.
Trading for growth? Absolutely. Trading for scale? Not so much. While sales obviously play a big role in scaling, it’s important to consider other ways to scale in a more sustainable way that drives long term success in the future, rather than risking it.
Sustainable Scaling Solutions
Through the utilization of more sustainable scaling solutions, businesses may find it easier to increase revenue at a quicker rate than they need to increase resources.
Here are 4 simple solutions to get started:
- Set realistic targets
Setting realistic and achievable targets for scaling can help businesses to increase revenue without going beyond their current capabilities. It provides organizations with the freedom to scale in ways that best suit them, while simultaneously providing entrepreneurs and leaders with confidence that they’re not taking on more than can be accommodated. Remember… It’s OK to say ‘no’ to growth opportunities.
- Focus on CLV
When growing, it’s important to bring in new customers. When scaling, however, it may be a smarter approach to focus on maximizing customer lifetime value (CLV); on squeezing more value from those that are already onboard. Ask yourself: how can products, services, solutions, and processes be optimized to improve CLV and generate more revenue without the need to manage a larger customer base?
- Utilise automation technologies
If you handle operations manually, you’ll soon discover that a rapid increase in revenue means a rapid increase in workload… and the need for more resources to handle it. That’s why it can be a good idea to look into automation technologies that minimize the need to bring in additional resources. Xero, for example, can send invoices automatically to 1 customer, or 1000, with the same amount of ‘effort’.
- Seek support
Of course, every business is different. The scaling solutions that are best for one may not be right for another. That’s why sustainable scaling relies on having access to the best possible support. Working with an accountant, like our team here at Direct Peak, can help. We work with organizations to generate real time insights into business and financial performance, helping to identify viable opportunities to scale.