Maximize your growth in a sustainable way
One trap into which many small businesses fall is failing to anticipate rising costs associated with business growth. As your business expands, you have more to pay for from month to month. Not creating a plan to deal with these costs can cripple or destroy a young enterprise. There are many ways to maximize your chances for success. Here are just a few.
The costs of growth
Every business worth its salt starts with a strong plan. Perhaps you have your entire costs and profit requirements laid out for the first year or two. Maybe even more. Truly accounting for growth requires more than simply assuming that as you have more customers you’ll have to hire more workers. Let’s consider a hypothetical paper company.
Physical Assets cost money
Suppose your make-believe paper company starts out with one location, a warehouse with space set aside for an office. You have a couple stockers and a delivery driver, and you spend your time managing the warehouse and making sales. You have enough clients to pay for your overhead and even make a tidy profit.
With one delivery van and driver, you can reasonably make up to 40 deliveries per week, assuming that you work from 9 to 5, Monday through Friday. Without adding another delivery driver and van, you’re not going to be able to add more sales per week, effectively capping your maximum profits. Now consider adding another route. You’re not just paying the hourly wage for a new employee. This also requires leasing or buying a new vehicle, keeping it fueled, paying for insurance and maintenance. If you add a new van without having new sales to back it up, you need to make sure that your pricing is sufficient to cover the new expense while you add new clients.
Your warehouse has finite storage space. Just like a delivery fan, this also limits your maximum profit since you can only sell paper that you have on hand. A new warehouse requires more stockers, more insurance, more security and various other expenses. And once again, you need to increase sales to make up for this additional cost. Machinery breaks over time and needs replacement. If you don’t budget enough to save the cash for immediate replacement, you can find yourself shedding money until you can get back into production.
Sales and employees cost money
You know how they say that you need to spend money to make money. This is true, and it applies to more than just your upfront costs. Customer acquisition is an ongoing process. You have to account for losing clients as they move onto other suppliers or for other reasons. When your business grows, you need to expand your sphere of advertising. Fliers and door-to-door sales might work in the beginning, but to reach a broader base you need to step up to mass broadcasting and social media, and this costs even more money.
Employees don’t have a set cost, they have a minimum cost. Remember that long-time employees need pay raises to deal with increases in the cost of living. If you plan to keep short-term employees, you still have to pay for regular training. One person can only run the office by themselves for so long before they need to hire on assistants. Office workers require more than just their salary. You need to set up a dedicated workstation, including a computer and landline phone. Your current phone and internet services might support only a set amount of connections. meaning that you have to pay more per month to keep everyone connected.
Speaking of monthly connections, did you know that most software for offices is only licensed for use by one user? Think about your cloud storage, accounting, group chat and other programs that you can’t work without. For every authorized user you need to buy or rent a license. This is not trivial. There are entire companies whose sole purpose is to find firms that don’t comply with the user terms and threaten them with legal action.
Even money costs money
Yes, more than paying money to make money, you have to pay money to have money. You also have to pay taxes on your income. Your maximum income is easier to guess if you have a smaller business. Going back to the hypothetical paper company, when you’re limited to X amount of sales per week, you know that you’re not going to exceed a certain dollar figure per year. As you expand you hopefully find yourself with a growing income. The issue with this is that you need to make sure that you don’t hit a higher tax bracket. If you’re budgeting taxes at a lower rate, you could find yourself in a bind if you don’t have the deductions to offset the extra income.
Professional Business Consultants in Phoenix
You can grow your business in a way that’s sustainable. This requires a plan that’s robust and versatile, and takes multiple factors into account. The best time to come up with one of these plans is before you start your business. That said, if you’ve already got a business but have no plan, you need to make one up right now. If you’re not experienced in business growth, a business tax consultant can help you to determine what your enterprise needs.
LBS Tax in Phoenix is your ideal choice. Hiring us on saves you the expense of adding a full-time bookkeeper to your staff rolls. We’ve got years of experience at helping individuals and businesses alike. Our team understands the issues that face entrepreneurs in this area. We’re dedicated to seeing you succeed, because when our clients do well, we all do well. If you’re ready to take your business to the next level give us a call or fill out the contact form on this page. We’ll set up a free consultation to help determine how we can best work together. Your success is within your grasp, partner with LBS Tax to make it happen.