Things would be easier if we could just hit the business growth benchmarks we’ve been striving toward.
At least, that’s what we tell ourselves.
In reality, problems don’t disappear once you begin to grow. A growing business faces a new set of challenges, and leaders have to adapt quickly if they want to survive.
Although it’s impossible to predict exactly which challenges you’ll face, they’ll probably include some of several common hurdles. Getting ready to face them, even when your business is still relatively new, puts you ahead of the game.
Here are some of the most common challenges businesses face and how you can prepare for them:
Just like in your personal life, a single major expense can completely ruin your budget if you aren’t expecting it. For a growing business, unexpected expenses are often things like surprise infrastructure costs or major repairs.
Some sudden costs for growing businesses aren’t emergencies — they’re time-sensitive business opportunities, such as the chance to purchase a valuable asset or make a big hire.
You can make sure you’re ready for these sudden expenses by maintaining a contingency fund.
Joe Worth, who has served as a CFO in several private and public companies, explains in Entrepreneur that small businesses need both sufficient operating cash and a contingency fund.
Worth suggests keeping enough cash on hand to cover operations during your business’ slowest month (or its slowest season if your business is seasonal).
The contingency fund should be roughly 3-6 months of company revenue in cash (or “liquid assets,” as accountants prefer to call it).
Keep the contingency fund in a simple savings account or the like and resist the urge to try and get some serious interest on the money, suggests Karin Price Mueller in this Entrepreneur column. Significant returns are never guaranteed, and if you can’t access the cash in the case of an emergency, what’s the point?
The exact amount of cash you should keep on hand will vary based on what you feel comfortable with. Riskier or more volatile businesses would be better off saving more.
But failing to save at all will almost certainly end with you scrambling for financing or incurring fees and high interest rates. At worst, you could miss that once-in-a-lifetime opportunity or even run out of money and have to shut down.
Don’t be discouraged if you’re nowhere close to those savings yet. Three months of revenue for your business is likely something you’ll have to build up over time. The key is to start small and start now. An alternative for the near future as you build up your contingency fund is to open a line of credit. Consult your accountant to get more details.
According to Rocket Lawyer, there are more than 100 million lawsuits filed each year in the U.S. The most common type of lawsuit is a breach of contract, which accounts for 60 percent of lawsuits. Torts, including injury and discrimination suits, make up 11 percent.
It stands to reason that the more your business grows — and the more assets you acquire and the more people you work with — the better your chance of getting sued.
So, you should definitely prepare for the possibility of a lawsuit, both by reducing your liability risk and giving yourself the best odds to succeed in court.
Just a few suggestions:
- Keep good records. It’s hard to over-document, especially when it comes to HR. Your business needs documentation procedures, and your documents should be stored safely and securely, but easily accessible for the people authorized to access them.
- Avoid complicated contracts. Contracts are the main source of lawsuits, so it makes sense to avoid signing a ton of them, or at least ones that seem especially complicated. Ask your lawyer to help you sort through your contracts. That brings us to the next point:
- Make sure you have an awesome lawyer. You don’t want to be scrambling for a lawyer in an emergency. Establish a strong legal network now, and make sure your legal team has expertise specific to your industry and your state. A great lawyer can make clear what you could be held legally or financially responsible for.
- Be careful who you work with. Hire very slowly and pay attention to red flags, both with staff and other partners who work with your business. You don’t want to get bogged down in any shady behavior.
- Get legal insurance. Businesses and individuals should invest in liability insurance in the event that they do get hit with a lawsuit.
- Invest in training for your employees. In certain cases, you may need to make sure that your whole staff is aware of appropriate and safe behavior. Training programs exist for this purpose. Your lawyer can advise you in this area, too.
Remember that even the best prevention tactics can’t stop every lawsuit, so you need to be prepared.
Changing Company Culture
A company’s culture is the product of the people who work there and the behavior they exhibit. So if you’re growing quickly and hiring quickly, your culture can change quickly, too.
This happened to Tony Hsieh in his first company. His startup was initially run by friends, and it was a fun place to work. But when they outgrew their personal network and started hiring traditionally, things went downhill.
“I think we did a decent job with the right skill sets and experiences. But we didn’t know any better than to pay attention to company culture. And not everybody we hired was good for our culture. By the time we got to 100 people, I, myself, was dreading getting out of bed in the morning to go to my own company.”
Of course, Hseih went on to found Zappos, a company whose strong culture and devotion to its value of customer service is renowned.
We can all learn from his initial experience, just as he did. Company values need to be established early on, and they should be a big part of the hiring process. Otherwise, one quick period of growth is all it could take to ruin the culture you intended to create.
A growing business is exciting, and jumping at every growth opportunity seems like a no-brainer for business leaders. However, there can be real downsides to growing too fast.
Brian Hamilton puts it well in this Forbes column:
“Most entrepreneurs underestimate how difficult it is to grow a company well. Growth is terrific, but good, sustainable growth is much better. It’s much harder to grow well than it is to just grow. As obvious as this may sound, it’s something that we miss sometimes, both on Wall Street and in analyzing private companies.”
Consider all growth opportunities carefully and in the context of the bigger goals for your company, and remember that calling your accountant isn’t just for tax time. They may be able to alert you to common cash flow problems caused by rapid growth.