As a business owner it can be easy to think it is time to grow to the next level when you are overworked, running out of space and sales keep coming in. However these are not signs your business is actually ready to grow. The real signs that your business is ready for the next level has more to do with ensuring everything is in place for that growth to be sustainable.
When the seeds for growth are planted without the right foundations in place, future problems can impact profitability, culture and possibly even cause business failure. The following four issues are the real signs your business is ready to move to the next level without complication. (For more, see: Grow Your Financial Advisory Firm Fast with These Tips.)
Corporate Structure & Financial Management
Having the right legal and financial structure in place is important to ensure that you and your business are protected while at the same time giving you the financial data to make smart decisions.
An example of legal issues to consider would be if you started out as a sole proprietor and grew the company to the point where you needed to add employees. At that point it may be prudent to consider the framework of your organization and create a Limited Liability Corporation (LLC) or Corporation. Or perhaps you are an LLC and are nearing the point where you are considering going public. If this is the case you may want to convert to a corporation. The structure you select will impact what types of capital you have access to, how you run your financials and how much personal financial protection you have. (For more, see: Tips for Advisors Who Want to Grow Their Practice.)
Financial management required a keen understanding of your accounting. If you have never paid much attention and look at the accounting as more of a requirement than a helpful task, it is time to change your opinion. The bigger you get the more you need to understand your own accounting. It is hard to allocate capital and resources effectively without knowing how those investments will impact your profit. For example if you don't understand what it costs to bring on and keep one customer you can quickly run up marketing costs that have garnered little to no payoff.
Revenue Model Mastered
Figuring out what your revenue model should be for maximizing profit can be a blend of art and science. While this does continually evolve over the life of the business, you want your current revenue model to be performing for your business today. If you are still trying to figure out how to maximize revenue at your current level, it would be wise to figure out how to maximize revenue before growing further. (For more, see: Growth Strategies For Financial Advisors.)
For example if you are currently billing customers by bidding projects that are a flat rate but you never estimate your hours correctly, growing will only add more hours you don't bill. More staff will only create more of a gap in your project profitability because you have more employees doing more work that you are not billing. The more you can't or don't bill, the lower your margin goes. Slowly you will lose profitability even with more business revenue because you have not mastered the model you are charging under.
Good Systems in Place
Without good IT and other systems in place a company that starts to expand will have problems with their quality of service or product. Additionally a lack of good systems can cause problems within your corporate culture. Staff can become frustrated. They may not know what to do or have the tools to do their job the right way, leaving the atmosphere stressed and defeated.
As if that were not bad enough, a lack of systems also makes it extremely hard to sell the company if you ever want to. Instead of having a documented process for how the company operates you have everything in your head. Unless you are staying on at the company you can't sell a business that is 100% reliant upon you. Systems can include everything for the process your sales teams use to close a deal, onboarding new hires or how a product is created. (For more, see: Technology Trends Financial Advisors Must Stay Ahead Of.)
Have a Growth Plan
Before you grow you need a strategy for the growth. You may end up pivoting away from your original plan as you grow, but a lack of any plan will prevent you from building your business in a direction that you actually want to go. It can be tempting when you are over run with work to go out and hire someone, but if you don't hire someone for things you need to delegate, you are making more work for yourself without removing some of your responsibilities. A growth plan should include how you are going to allocate your capital to grow, what your staffing plans are and how you are going to manage the growth on a day-to-day basis. (For more, see: Tips for Small RIAs Looking to Grow.)
The Bottom Line
Most advisors or business owners think they are ready for growth when they start to get busy and have increasing customer demand. However, until you have ensured you have a solid foundation to build from you may find many obstacles preventing you from getting your business to the next level. (For more, see: Grow Your Financial Advisory Firm Fast with These Tips.)