Obviously on a website like We Grow Businesses, we’re going to say that business growth is worth investing in! However, let’s put our vested interests to one side, and be objective. Why should anyone invest time, money and expertise in growing a business? What does investment actually mean? How is it connected to business growth? And importantly, when should you NOT try to grow a business? Let’s try and answer these questions.
Investment to Grow a Business
When we talk about growing a business we typically mean increasing revenue and profits. In most cases, this also means more staff, bigger premises, more customers, and so on.
We believe that growing a business is a continual process of taking one step backwards in order to take two steps forwards. For example, hiring a new member of staff.
If you hire a new person into your business, it’s often the case that the new person needs to be trained. Time and money are put into the new member of staff (one step back) before they are able to make a valuable contribution and help the business to grow (two steps forwards).
This process of taking one step backwards to take two steps forwards is what we would describe as investing to grow a business.
Growing WITHOUT Investment
It’s hard to imagine situations where a business can grow without investment – unless you happen to be incredibly lucky and stumble across a super-hot market. But even then, you’re going to have to hire people, take on premises and so on.
Perhaps you start a new business with a queue of customers chomping at the bit to buy from you. But again, the time will come when more human beings are needed to support demand, or more capital investment is needed, or a problem needs to be solved by someone other than you.
We think it’s probably fair to say that if you try and grow a business without investment then chances are it will either take a very long time to grow, or growth simply won’t happen at all.
Therefore, if you want your business to grow, you need to come to terms with the idea of investing to grow – and more specifically parting with increasingly large amounts of money, and taking more calculated risks.
Risk and Bad Investments
Like many investments, investing to grow a business is rarely guaranteed. For example, new members of staff don’t always work out well. Time and money is put into hiring a new person. It ends badly. The business has then made a loss on their investment.
Losing or wasting money is often a tough thing for business owners to deal with. It can shake business owners’ confidence and put them off investing to grow.
A common area where we see business owners getting their fingers burned is in marketing. There are many companies that offer marketing services. They talk a good game and persuade small businesses to part with (sometimes) thousands of pounds per month. The extra leads and sales never materialise. Sooner or later the business owner realises it’s not working. Then they have the unpleasant task of firing the marketer. And everyone is left feeling upset.
Bad investments happen to virtually everyone. The important thing is to learn from them, and to try and make a better decision next time around. We use benchmarking to help our clients understand how much is a reasonable amount of money to invest in marketing, for example, and what is a reasonable return to expect.
When NOT to Invest to Grow a Business
We’ve said that growing a business isn’t linear – it’s one step back to take two steps forwards.
Once a growth project is kicked-off, the chances are that things will get worse before they get better – especially where cash and profits are concerned.
If you’re starting from a weak financial position, and then kick-off growth activity, you can put your business under serious financial pressure – which in some cases can be fatal to the business.
We look at a range of factors to decide whether our clients are in a safe position to invest to grow. Probably the most important factor is cash.
We encourage our clients to hold one to three months worth of cost coverage as cash, net of VAT and Corporation Tax liabilities. In other words, if a business has costs of £10k per month, we would suggest the business should hold £10k to £30k in cash. We think this strikes a good balance between investing to grow, and not taking excess risk.
Other factors we look at are margins, plans and key performance indicators such as the number of new leads coming into the business.
Should I Invest To Grow My Business?
We think there are two parts to this question – how much to invest, and what to invest in.
How much to invest will depend on your current financial position. With benchmarking, we can show you how your business compares to other small businesses, and help you to reach a more informed conclusion about how to proceed.
What to invest in depends on which parts of your business are working well, and which could benefit from some attention. We offer a Free Growth Health Check to help answer this question. We look at 14 areas of your business, and then show you how your answers compare to your peers. If you’re interested to find out more, you can book a free growth health check here.