can-you-manage-a-surge-in-new-business-3Last Saturday we visited Kotor in Montenegro on our 8-day cruise. Kotor is a small town at the end of a fjord, fairly isolated from the rest of the country.

Even though it was the end of the season for visiting cruise ships, three ships unloaded between 4,000 and 6,000 passengers for an 8-hour visit on Saturday, in effect doubling the population of Kotor.

That got me thinking about how small businesses, like ours, deal with a surge in new business. Are we prepared for it? Could we manage a sudden increase of 10, 25 or even 50% of new business?

Black Tulip recently added a large new client which represented approximately a 15% increase of our monthly billing. There were many issues with this client, but the area where we fell short and the cause of having to stop working for this client, was not being prepared for the sudden surge of work.

In retrospect, we were already working at capacity and even though we quickly hired two new full time staff, we simply weren’t able to manage the increased work load at all levels of our staff. Looking back now, I should have turned down this new business. We simply weren’t ready for it.

The following are a few of the growth issues with which you may have to contend.

  1. A Fast-Growth Business Means Lots of Hiring

It’s very easy to underestimate the time and direct costs of hiring lots of new people – and hiring the right people. You will need to spend considerable time developing job descriptions, posting help wanted ads, sorting through resumes, conducting and arranging phone and in-person interviews, and checking references.

  1. Exceptional People Are the Key

While every business benefits greatly from having good people, the importance of having above-average people in a fast-growth business can’t be overemphasized.

  1. Look Out for Stagnant Managers

One of the thornier issues you are going to confront in a fast-growth business is that some people, even those who are committed to your business and work hard, aren’t able to adjust to the changes brought about by growth.

  1. The Impact of New Hires

Current employees often feel threatened by an influx of new personnel. Senior employees are likely to feel that their status within the organization is being undermined, while less senior employees may feel that they are being neglected.

  1. Fast-growth Businesses Burn Money

Even with good profits, there will almost certainly be times when a growing business will run tight on cash. Expenditures often occur before related sales are realized. In particular, businesses with inventory or receivables may run into this situation quicker than others. But, in general, all fast-growth businesses are going to run into plenty of unforeseen costs.

  1. Cash Flow Projections Are Especially Important

The faster a business is growing or changing, the more difficult it will be to plan future expenditures or income. But doing so is a must. Careful planning and the constant updating of those plans, particularly cash flow projections, is of paramount importance to a fast-growing business.

  1. Watch Your Profit Margins

In a fast-growth business it is very easy to become excited about rapidly rising sales and to lose track of profits. This is especially true when an organization shifts from a very small entrepreneurial organization to a larger professional organization with several managers. Be aware that during the transitional phases, overhead expenses can mount rapidly.

  1. Tax Estimates Can Sneak Up On You

It is easy to underestimate the impact of taxes when planning for a growing business. Don’t assume that taxes will rise parallel to an increase in sales. As your business becomes more profitable, your tax bill may jump as you move into higher tax brackets.

  1. Find Flexible Facilities

A fast-growth business may need an increasing amount of space to house additional equipment and/or personnel. You could lease an initial space to accommodate anticipated future growth, but this commits you to a space larger than your current needs and squanders money needlessly. Or you may find a landlord willing to rent you space on a short-term basis – say, six months to a year – so that you can upgrade square footage with some immediacy. However moving can be disruptive to your current operations.