2017-12-05 00:00:00 Scaling English Find out about the potential issues you can face when you decide to start scaling your small business. https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/12/Woman-researches-expanding-business-practices-for-small-business-scaling.jpg https://quickbooks.intuit.com/ca/resources/scaling/expanding-small-business-scaling/ Cons to Scaling Small Business

Cons to Scaling Small Business

2 min read

The concept of scaling up your small business probably sounds appealing, as it brings the opportunity to build your brand and increase profits. While scaling can be a smart decision, there are also potential downsides to growth that you should consider before you move forward.

More Expenses to Manage

Business growth can get expensive. It’s likely going to cost a significant amount of money upfront when you initially expand your business, and you’re also going to have higher overhead costs as you pay for additional inventory, supplies, and labor.

In the long run, you can cover those costs with the increased profits you make by scaling your business, but it’s important to keep your cash flow in mind. Those future profits do little good if you have a bill to pay immediately without enough cash on hand to cover it. Cash flow problems are a leading cause of small business failure, which makes a detailed financial plan an important part of expanding your business.

Increased Risk of Inventory Issues

When your business needs more inventory, there’s a greater risk of potential issues with that inventory. You may find that a current supplier can’t handle your increasing inventory needs, leaving you searching for a new supplier to pick up the slack. If anything goes wrong with an order, it could take longer to fix because of the order size.

There’s also the danger of ordering too much inventory, either because you overestimate how much you need or because your expansion plans fail. At that point, you’re stuck paying for inventory you may not be able to use, especially if there are any perishable items.

Loss of Brand Identity

One of the biggest and most overlooked dangers of scaling up is losing what made your brand special in the first place. Customers often choose small businesses because they like supporting unique, independent companies rather than large corporations.

As your business expands, it becomes less unique and more like those big businesses, potentially alienating your original customer base. When you have one restaurant, it’s a restaurant that’s exclusive to its community with its own special quirks. When you have five restaurants in different cities, they’re chain restaurants with standard operating procedures. It’s not easy to expand while retaining the charm of your small business roots.

Working Longer Hours

When there’s an opportunity to make more money, it’s easy to forget about your work-life balance. Even if you plan to hire new employees to help with the increased workload, business growth is still a time-consuming process. At least until the expansion is complete, expect to work longer hours and be under more pressure.

If you have the free time and you crave a challenge, you may be fine with the commitment involved when you scale your business. It’s a different story if you already work long hours and have a heavy workload to deal with.

None of these cons are intended to discourage you from scaling your small business. It’s simply smart to know the potential downsides that come with a business expansion to ensure you make the right decision.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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