It’s almost inevitable that a successful business owner will face the decision of whether or not to scale up their business in order to seize potential growth opportunities.
How do you decide if scaling up is right for your business and avoid the pitfalls along the way? While there are many advantages to scaling up, there is also a great deal of research and planning involved.
Here we speak to Stephen Hand, Director Invoice Finance & ABL at Lloyds Bank to get some practical advice for small businesses looking to scale up.
1. What risks do businesses need to be mindful of when scaling up?
Stephen: Ensuring the business does not run out of cash. Growing too quickly can put increased pressure on working capital, so it’s key that businesses ensure they plan and manage their working capital closely.
2. What financial warning signs should businesses look out for when scaling up, and how can they act, before it’s too late?
Stephen: Firstly keep an eye on margins, top line growth at the expense of bottom line profitability is often something that can happen. Look out for debtor days (the average number of days it takes a company to collect payment for the sale of goods or services rendered) increasing, as perhaps the focus goes onto growth rather than good disciplines.
For example, stock levels increasing and watching out for slower inventory turn.
3. Is there any way banks help you to mitigate these risks?
Stephen: Lloyds Bank can help you to better manage your working capital with a free working capital review using our innovative working capital tool. The tool can help visualise where in your working capital cycle you could be below par and helps you focus on key actions to keep the cash in your business flowing.
We are also able to provide Invoice Finance which allows businesses to free up capital and gain earlier access to payments from their customers. This means less pressure on their working capital as cash can be released at the time it is most crucial, allowing them to focus on running their business and executing on their scale up plan. Furthermore, Invoice Finance is generally cheaper than other lending solutions such as overdraft.
4. Do you see any other common challenges facing small business owners in the current landscape?
Stephen: Lots, however, this has always been the case! But equally, there are still lots of opportunities for SMEs in the current landscape. Keep to the basics, have a plan, understand your strengths, weaknesses, opportunities & threats. Cash is king, so control it, be flexible and adapt. Recruit the best people you can afford and constantly strive for small improvements in every area of your business.
5. What about the opportunities? Are there any exciting trends or innovations that could positively impact small businesses?
Stephen: Digitalisation is the biggest opportunity, clearly it depends on sectors, how big or small the influence, but every business will be affected in some way. It is key to embracing the opportunity and look at ways to harness the new opportunity it can bring to business; from improving process efficiency to increasing customer engagement to mitigating risks such as fraud.
The key takeaway here is before looking to scale your business, ensure you’ve done your homework. Scaling a business can be extremely profitable but also challenging at the same time to ensure you’ve got a plan in place which minimises the risks and provides a smooth transition to becoming a larger organisation.
Empowering small businesses
For more information on how to scale up your business, you can visit Informi, a website that helps empower small businesses to make better decisions.
Informi is a free resource and provides a range of comprehensive, straight-talking guidance on all aspects of running a business from starting up, marketing and legal advice through to management guidance (for yourself and others), business administration and of course, scaling up. This includes sources of financing ranging from grants to bank loans to crowdfunding to Invoice Finance
If you want to know more about Invoice Finance or if you have a client that may benefit from Invoice Finance you can get in touch by emailing Direct.email@example.com or call 0800 077 8066 for a free, non – obligatory consultation. Alternatively, you can find out more about managing your working capital here: lloydsbank.com/workingcapital
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