In association with Hiscox
Starting up a business can be hard, but growing it can be harder. Knowing how to scale up without screwing up can be tricky for small and medium sized enterprises, especially as the number and type of risks expanding businesses face inevitably also increase explains Dave Frampton, Content Manager at Hiscox UK.
It can be difficult to get your arms around new threats, as every company grows at its own pace. Some businesses develop naturally, while others do so in fits and starts. Taking your business to the next level can be great, but growth can be risky. Manage the transition well and you can see your business take off. Here are some common issues to beware of:
Remember cash is king
“Turnover is vanity, profit is sanity and cash is reality,” is the old business adage, but many small businesses expand without keeping a close eye on what money is coming in and out. It’s easy to get caught out when you need to invest to expand and new revenue streams can take time to flow. So, as your company’s turnover increases you need to keep a tighter hold on its finances or you might risk everything.
Make sure the growth is good
Are the sales underpinning your expansion plans copper-bottomed or a flash in the pan? Plenty of ambitious small businesses mistake a short-term rise in sales with long-term growth and expand too quickly, only to regret it later.
Don’t dilute the magic formula
You don’t want to harm your business by growing too quickly and letting down the people on which its past success has been built – existing customers.
Take cover as your grow
You need to take stock of where your business is from time to time, how it has changed and what are the new threats to its success. Updating your insurer as your company changes is unlikely to be top of your to-do list, but it’s important. First, an insurer can offer you valuable advice on how to manage the risks of running a growing business. After all, it has probably seen and had to deal with just about all of them. Also, it could invalidate your policy if your insurer isn’t informed about how your business has grown.
These are the kind of developments that your insurer should know about:
- Hiring new staff
- Developing and launching new products
- Breaking into new markets
- Expanding your operations, such as signing leases on new office or production space
All of these will change your company and it’s important to reflect on what new risks these create for your business and how you should manage them. Some of those threats can be managed within the firm, but others may need to be mitigated through insurance.
As your business grows, the potential impact of lost income can be greater. Can you afford to pay the bills and service debt you might have taken on to fund expansion if your business is out of action or not working at full capacity? If not, think of buying, or increasing your business interruption insurance.
If you rely on the internet for at least some of your sales growth, or if you’re scaling up your infrastructure using online systems, such as cloud-based services, then it’s worth considering cyber insurance. There is now almost an evens chance of a business falling victim to a cyber attack, and two thirds of those attacked suffered at least two hacks, according to the Hiscox Cyber Readiness Report 2018. The average cost of an incident for a business with fewer than 250 employees was just over $4,000, while the total cost of all incidents in that year for these businesses averaged nearly $34,000. Those can put a big dent in any SME’s finances, but cyber insurance can help get your business back on its feet again quickly.
Rapid, poorly managed growth can be just as dangerous as no growth at all, so it’s important to set the right pace of development for your company. The IoD offers training and qualifications for every member of your leadership team and wider organisation – from tailored in-company courses to off-the-peg skills solutions, for those undertaking their first senior management role to those with non-executive positions within your board. Supporting your employees’ personal and professional growth in line with your business development ensures that ambitions as well as skillsets are aligned with your expansion strategy.
Reviewing and updating your business insurance as you go is another important part of a good expansion strategy, as it will give you the reassurance of knowing you can face whatever the future may bring and the confidence to grab opportunities that will help your business to flourish.
The views expressed in blogs such as the above are those of the author and do not represent the views of the Institute of Directors.
Our preferred partner of Business Insurance, Hiscox, are experts in small business insurance and understand the various risks your small business faces. This means should the unexpected happen, their comprehensive cover will provide the right cover against the risks unique to your work activities and the right policy to protect against claims.
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