Bigger is better.
Everyone knows that.
Unfortunately, in the world of entrepreneurship, this is not always the case. A more appropriate aphorism might be “more money, more problems.”
Simply put, too many small businesses attempt to scale before they are ready. They can be fooled by misleading performance metrics that show their company is headed to the moon when, in fact, their operational processes are nowhere near being able to keep up their current pace, let alone accommodate more locations.
This is not meant to limit your imagination. By all means, dream big. Just make sure your business has a firm foundation before spreading yourself even thinner, keeping an eye out for the following signs that your business may need an operational reset prior to expansion.
4 Signs Your Business Needs an Operational Reset
A false sense of security.
It’s an age-old axiom, but one that entrepreneurs should heed.
In today’s data-driven world, it can be easy to find a statistic indicating that your company is on the fast track to exponential growth. A few of the usual suspects include:
- Crazy-good months – a one-off month of enormous revenues may mask underlying operational issues
- Over-reliance on a single client – a customer that accounts for more than 10% of company revenues should raise a red flag, with more than 25% of revenue coming from a single source indicating extreme risk
- Misleading “busy-ness” – working around the clock does not necessarily mean it’s time to expand, rather, it may indicate that you are contributing too much time to low-value tasks
Therefore, take these types of metrics with a grain of salt. If you are seriously considering expansion, be on the lookout for the following signs. The presence of one or more means that expansion talk may be premature. An operational reset could be in order.
1. Negative Cash Flow
No amount of accounting wizardry can hide cash problems. If you are burning more cash than you are generating, your business is not long for this world. Perform your financial due diligence and address cash flow issues before expansion buries you even deeper.
2. Recurring Fines
Regularly paying out municipal and industry-specific fines is not an indication that “the man” is out to get you, the jealous masses trying to pump the brakes on your inevitable growth. It more likely means that processes are broken. Internal controls are weak. Your business is reacting to problems rather than addressing the root cause.
3. Operational Inefficiencies
Do you find yourself doing a lot or rework? This could be an indication that systems and processes no longer support efficient operations. When it feels like a Herculean effort is required to complete what once felt like a normal task, an operational reset may be more appropriate than an expansion.
4. Customer Complaints
There are two types of word of mouth. One of them is not good. Expanding in the midst of customer unrest runs the risk of tapping into negative spheres of influence that will spread like wildfire. It is imperative to close the gap between your perceived value and what customers are actually experiencing before opening up new locations.
6 Simple Steps for Resetting Operations
If you are experiencing any of the symptoms listed above, it is important to get serious about turnaround management. This will put existing operations on firm footing before expansion creates additional problems. Here are some straightforward tips for engaging in an operational reset:
- Audit operations – bring hidden inefficiencies to light. Expose dormant risks. Identify misalignments. An operational audit provides a factual framework for making decisions during the reset.
- Tighten KPIs – which metrics matter to your business? Align your team and create clear, measurable performance targets by which to assess operations moving forward.
- Standardize processes – reduced variability. Consistent results. They are crucial for scaling efficiently for manageable growth.
- Stabilize cash flow – trim the fat on discretionary spending. Restructure debt to minimize outgoing cash flows. Streamline inventory management and accelerate payment terms for a tighter working capital infrastructure.
- Fix margins – consistent margins are the only way to guarantee positive cash flow indefinitely. If your business is spending more than it makes, meticulous cash stewardship can only take you so far. Price your offerings to capture optimal value. Market aggressively to high-value clients. Source from the most competitive vendors out there.
- Improve communications – the quality of your communication directly impacts the quality of your outcomes. Align teams. Unify vision. Eschew confusion. It all adds up to a better understanding of new priorities, processes, and expectations.
Keep the Horse Ahead of the Cart When Considering Expansion
It’s counterintuitive, but growth is the undoing of many small businesses. Too many companies attempt to scale before their operational processes are equipped to handle higher volume. Keep an eye out for the warning signs that your business may need an operational reset and employ the simple strategies listed above for the most seamless expansion possible. For more of the latest business trends in the Texas Gulf Coast region, explore the content at The Katy News for the market’s leading thought leadership!
