02/07/18

7 Pitfalls to Avoid When Expanding Your Business

Expanding your business can present an exciting new chapter, but it’s not without its potential difficulties. As a small business owner, it’s prudent to anticipate any preventable issues that your company might face as you expand. Doing so will enable you to prepare the resources and strategies you’ll need to tackle these challenges head on.

In this article, we explore the pitfalls to avoid when expanding your business.

1. Lacking Sufficient Capital

Around 8 out of 10 small businesses fail due to insufficient capitalization. This is especially true for businesses that are poised to expand. While you may be getting more business, some of your clients might defer payment or two until a later date. One client postponing payment can be disastrous to your cash flow considering that you may have orders to fulfill and employees on payroll. With spending outweighing your income, you might need access to more funds just to stay afloat.

Avoid falling into this trap by keeping a close eye on your cash flow. Make it a point to eliminate unnecessary expenses. Also, consider reinvesting a percentage of your income in your business as emergency funds. Your company is particularly vulnerable to insufficient capitalization during the early stages of your growth and these two tips can help you stay in business.

2. Failing to Establish an Organizational Structure

An organizational structure offers guidance to employees by providing the map of corporate reporting relationships that determine the company’s workflow. As your business grows, it is imperative that you lay out your company’s structure. Without a formal corporate structure, employees might struggle to find the right person to report to in various situations. More importantly, work might be delegated to the wrong person and causing its quality to suffer or for it to slip through the cracks completely. This may create a lot of confusion and can cause tension between employees.

Make an organizational chart for your small business to avoid these issues. With an organizational chart, everyone can see the chain of responsibility in your company. In addition, an organizational chart can provide a pattern for internal promotions. This could be very useful as your company opens more positions.

7 Pitfalls to Avoid When Expanding Your Business

Sample organizational chart. Source: Pinterest  

3. Expanding Without a Core Team

When growing your business, you’ll need to rely on your employees to grow into new roles and perform more complicated tasks. This is why you need strong, dedicated, and well-trained employees in place before you expand. However, many businesses overlook the importance of establishing a core group before scaling. As a consequence, business owners may try to do too much by themselves which hampers the company’s ability to grow. Or worse, the quality of products or services can decline and clients begin to lose interest in maintaining a business relationship with you.

Get a core a team in place before you consider expanding. You can delegate important tasks to this group of employees. They can work in your business while you work on your business.

4. Having Poor Hiring Practices

With an influx of new clients, some small businesses might be tempted to lower hiring standards to keep up with demand. With the US unemployment rate dropping to its lowest in 17 years, you might find it extremely difficult to find top-tier talent and you may consider settling for candidates who don’t have the right experience or required competencies.

Don’t fall into this trap. Hiring the wrong person can cost your business thousands of dollars. That’s a lot of money, especially for a business that’s just starting to grow. Instead, invest time and resources in attracting and hiring top talent. Hiring the right person not only increases productivity, but it also helps you to retain your clients while boosting your reputation as a reliable business partner.

5. Neglecting Company Culture

While focused on finding new clients and keeping existing ones happy, many business owners tend to ignore the importance of establishing their company’s culture. This is probably one of the reasons why 64 percent of all employees reported that their company doesn’t have a strong work culture. By definition, culture refers to the practices and virtues that influence the behavior patterns of employees.

With an established corporate culture, you can hire employees who share the same values. Employees who fit well with their organization experience greater job satisfaction and are more likely to stay with their employer. In addition, research reveals that corporate culture is a key to strong employee performance. As your business grows, you need employees who are happy to stay and share the journey with you. Cultural fit helps you attract and retain these employees.

7 Pitfalls to Avoid When Expanding Your Business

Benefits of cultural fit. Source: EmployerAdvisers

6. Losing Sight of Marketing

An Infusionsoft study reveals that close to half of small business owners don’t know it their marketing efforts are effective. As small businesses experience significant growth, owners often relegate marketing to the back burner while focusing on meeting client demands. It’s tempting to fall into the mindset that marketing is not a priority because you have more clients to service.

7 Pitfalls to Avoid When Expanding Your Business

Almost half of small business owners have no clue whether their marketing is effective. Source: MarketingProfs

In any line of business, your competitors are always ready to sneak up and steal your market share. You may be enjoying a high growth rate now, but that might not be the case in six months unless you make sure that you market effectively. Marketing not only helps you secure new customers but it also helps you retain your existing ones.

7. Ignoring Churn Rate

Many business owners have the tendency to focus solely on their growth rates. They make projections and attempt to scale based on assumed growth. While this works in theory, in the real world, clients leave. Failing to take your churn rate into account can cause you to spend more than what you actually make.

Consider your churn rate when you estimate future growth. Keep a close eye on the number of clients or customers that leave your business every month. While it is suggested that you keep your churn rate as low as possible, a small business should be able to tolerate a 3 to 5 percent monthly churn rate and still grow.

The Bottom Line

Expanding your small business can be an exciting and rewarding venture. While it often comes with a lot of optimism, growing your business can throw a few curveballs your way. Anticipating common pitfalls such as lacking sufficient cash flow, failing to create an organizational structure, expanding without a reliable team, having poor hiring strategies, neglecting corporate culture, forgetting about marketing, and ignoring churn rates can help you prepare your resources and come up with strategies to meet these challenges head on.

Get more small business tips from Lendio.

About the author

Evan Tarver, Fit Small Business
Evan Tarver, Fit Small Business

Evan Tarver is a small business and investments writer for Fit Small Business, fiction author, and screenwriter with experience in finance and technology. When he isn’t busy scheming his next business idea, you’ll find Evan holed up in a coffee shop working on the next great American fiction story.

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