You may have started your business on a small or medium scale, but you will reach a point where you seriously consider expanding your business. If you are there now, you also recognise the immediate urgency to balance rising operational and expansion costs with your revenue. There is a need to broaden your base of business once you experience a growing consumer base and booming sales. You may also consider expanding your business once you have established your practices and products or services.
In order to effectively control your business costs while increasing your revenues, you will need to manage the following finances optimally.
The Estimated Sales:
Once you have devised a strategy to grow your business, calculate your expected sales conversion which will help you strategise your operational costs. Increasing sales in an indication of rising consumer demand but ensure that you do not end up investing more than you profit from your sales, past a certain point. Set realistic expansion goals without inviting excessive investment in terms of resources.
The Expansion Expenses:
Growing your business may comprise of one-time costs such as purchasing extra space or new machinery. Invest in these expenses diligently to set up your growing business better. You may need a new marketing strategy to engage your consumers and this is an expense that must not be compromised on at any cost.
A few other costs that you can expect while taking your business to the next level expenses such as hiring short-term employees to handle the initial growth, training new and existing employees to handle the growth, and so on. Keeping your existing operational costs aside, ensure that you can identify expected costs for expanding which will further help you in calculating the time required to start profiting.
The Operational Costs:
With a growing business, your operations are bound to become more exhaustive and will require more effort to achieve the expansions. Approximate your existing operational costs that may increase – this will include rent for your office (if you are expanding space), increased employee salaries or addition of new staff, additional maintenance for new equipment or machinery, increased transportation costs, enhanced customer services, and a higher quantity of production materials.
Once you have gauged your operational expenses, you will able to identify your profit margins for every product or service and the gross production output required to achieve your desired revenue targets.
Project Cash Flow:
Reckoning your cash flow in advance is one of the most integral aspects of controlling your costs while expanding. Determine the time the various time of payments will require such as vendor payments, client payments and customer payments. Compare this with your operational cost and understand how long it will take your business to cover up profit margins or cross them. You may be required to loan certain amount of capital for investing in your growth plans but ensure that your repayment is arranged in a way so as to be covered by your business revenue, whenever they are coming in.
Expanding your business can be a huge logistical challenge so you must absolutely have your resources and execution strategy in place. Before embarking on an expansion program, ensure that your team is capable of handling new challenges that may present themselves, with their skillset and experience. Additionally, be wary of sudden increase in demand – your existing business structure should be adapted to handle the surge in sales and workflow. Do not forget to implement technological applications like project management tools, sales tracking software, and so on, in order to reduce the impact of increased work pressure on your employees.
As James Cash Penney, founder of JC Penney, says, “Growth is never by mere chance; it is the result of forces working together.”