Scaling Up Your Business

Perhaps you have been in business for some time and you have decided that it is time for your business to grow.   This is a very exciting time and you have a lot of homework to do before you make your move. How will scaling up your business affect your bottom line?

Economies of scale

Anyone who has ever made a pot of soup knows that it barely takes any extra effort or money to make a double batch.  This is an example of the economy of scale.  While the output increases by a lot (in the case of soup, 100%) the inputs only increase by a small amount.  In your business, you will need to take a look at what your current margins are, and how those margins will change if you greatly increase you r number of sales.

Overhead costs

If you decide to get bigger, you may outgrow the space you are currently operating from.  You may find that you are too busy to perform all of the functions that you have been accustomed to doing for your business free of charge (while it is great for the CEO to answer the phones and assemble the products in the bootstrapping days, there comes a point where this gets to be rather inefficient use of time and some employees will have to be hired.)  You may have to keep your business open for longer hours and as a result incur higher utility bills.  Once again, it is important to calculate how your newly larger revenues will stack up to these increased costs.

Cash Flow Issues

When you expand your business, you may experience a lag between expansion and revenue realization.  How many months do you think you could carry your business with what’s in the bank right now?  What will your increased monthly expenses look like?  How many months could you carry the business at the increased monthly rate?  The answer to this problem is likely borrowing or investment.  Either way, lenders or investors will want to see a solid business plan to show how your expansion is a good business decision for your company.