Growing your business: can you afford your next big step?

Perhaps you’ve found larger premises, identified someone you would love to hire or been offered a contract that could take your business to a different level.

You can see the opportunity. The harder question is whether the business is ready to pay for it.

That question deserves more than a quick look at the bank balance. A worthwhile investment can still put you under pressure if the cost arrives before the return. Equally, uncertainty about the numbers can hold you back from a move that is perfectly manageable.

A clear financial plan helps you decide how to proceed and what needs to be in place first.

Be specific about what the investment should achieve

“We need to grow” is a starting point, but it doesn’t tell you which investment makes sense.

Larger premises might allow you to fulfil more orders. A new employee might release your time for sales. Better equipment might reduce production time or cut the amount of work you outsource.

Describe the change in practical terms. How much additional work could you deliver? Which costs might fall? When would you expect those improvements to begin?

If the benefit is mainly freeing up your own time, decide how you intend to use that time. Otherwise, it is easy to add a cost without making the change that was supposed to justify it.

Build a complete cost picture

The headline price is rarely the whole commitment.

New premises can bring a deposit, fit-out costs, moving expenses and a period of paying for two locations. Equipment may require installation, training, maintenance or changes to insurance. A new service might need software, marketing and time to develop a reliable delivery process.

Separate one-off spending from the costs that will continue every month. Then identify which costs are committed and which can be reduced if the plan takes longer than expected.

This also helps you compare different ways of achieving the same result. A staged move or a smaller initial investment may give you useful evidence before you commit more money.

Work out how much extra business you need

Additional turnover is only useful if enough remains after the costs of delivering it.

For illustration, suppose an expansion adds £3,000 a month to fixed costs. If each additional £1 of sales leaves 40p after the variable costs of those sales, you would need £7,500 of extra monthly sales to cover that £3,000.

That calculation is a starting point, not a complete investment appraisal. It excludes upfront spending, financing costs and tax, and assumes the contribution margin holds as sales increase.

It does, however, give you a more useful target than simply hoping to be busier. Your accountant can help you test the margin and identify the costs that change at different levels of activity.

Map out the first few months

An investment that makes sense over a year may still be difficult to fund during its early months.

Build a month-by-month view of the initial outlay, ongoing costs and expected customer receipts. Allow for the time needed to recruit, train, launch or reach normal capacity.

Keep confirmed orders separate from sales you hope to win. A good prospect can inform your planning, but it shouldn’t quietly become guaranteed income in the forecast.

The result should show when cash is most stretched and what resources would be needed to bridge that period.

Decide what would make you pause

Before committing, consider what happens if demand grows more slowly, costs are higher or a key customer pays late.

You don’t need to predict every difficulty. You do need to know which assumptions matter most and what you would do if they change.

For example, you might review recruitment after a certain level of confirmed orders, or split an equipment purchase into stages. Decide who will review progress and what evidence will trigger the next decision.

Give your ambition a financial plan

Good planning should help you pursue an opportunity with your eyes open. It gives you a way to judge the commitment, compare options and recognise when the timing is right.

At Acconomy, we understand that business decisions are personal as well as financial. You may be building a larger team, creating a business that depends less on you or preparing for a future sale.

Before your next big step, speak to Nigel and the Acconomy team about the numbers behind it. A clearer view today can help you make a more confident decision about tomorrow.

Related reading: Your business is profitable, so why is cash still tight? and Taking on your first employee: the costs beyond their salary.