How to Scale a Business
Scaling a business is the process of expanding your company while maintaining a steady cash flow. Developing a scalable business can help you increase customer relationships, pursue new markets, design new products and services, expand the workforce and boost sales.
Scaling can help increase revenue in the long run, but it takes strategic planning and extra resources to make it successful. Here’s a closer look at how to scale a business and when to ask for help.
1. Make sure you’re ready to scale
While growing a business is similar to scaling, the difference lies in the overall cost and efficiency. Growth increases revenue in pretty close proportion to new resources, like hiring new employees or leasing new space, and tends to be fairly steady. If you double your expenses to double your revenue, your company is growing.
By comparison, scaling focuses on increasing revenue by significantly more than you increase costs. If you double your expenses to make ten times as much revenue, or double your revenue without increasing costs at all, your company is scaling. This is done by finding ways to increase efficiency and reduce costs.
So, how do you know if you’re prepared to scale? Here are some signs that your business might be ready to scale up to the next level:
- High demand. If you’re turning away clients because you can’t keep up, hiring additional staff or opening a new location could be a great solution.
- High customer retention. Having a loyal client base means your business model has been successful so far. If you expand, your current customers might utilize your services more or recommend you to their friends.
- Positive cash flow. Being in a good financial state could offer the safety net needed to take on the risk of scaling up your business.
- Market trends. Analyzing market trends and opportunities could indicate if your industry has potential for growth in your area.
Some businesses are better suited for scaling, such as those that offer online courses, event planning and catering services.
In contrast, scaling a restaurant might be more challenging because restaurants typically operate with lower profit margins, leaving less room for error. That said, success stories like McDonald’s show that with enough planning, grit and adaptability, scaling any type of business is possible.
2. Develop your business scaling strategy
Develop a simple and clear strategy that employees, customers and vendors can understand and embrace. Think of this as an in-depth business plan that everyone can follow during each step of the scaling process.
To build a solid strategy, you’ll need to:
- Define your unique selling proposition. You’ll have a better chance of connecting with your current customers and attracting a wider audience if you stay focused on your core products and brand identity. This begins with defining your unique selling proposition (USP), which clearly explains the factors that set your business apart.
- Review your revenue streams. Look for areas that need improvement, and consider cutting or revising products that are underperforming. If your business budget permits, you can consider adding new revenue streams, but optimizing your existing revenue streams is equally important.
- Prioritize areas of growth. Identify which areas of your company have the largest revenue potential and prioritize them when it comes to resources. For example, if you have tech automation solutions that can help your company grow, it may be worthwhile to hire additional programmers or product managers to support that.
- Research your competition. Look at successful companies within your area that offer similar products and services. What’s different about their business models? Is it feasible for you to shift and adapt in ways to help you stand out from the competition?
- Set goals. Focus on using specific metrics to measure business growth, such as customer retention rates. Make sure your goals are specific, measurable and attainable.
- Improve staff meetings. Schedule regular meetings like daily huddles or monthly all-hands meetings to keep your team up to date on the scaling process. Don’t forget to cheer everyone on as each milestone is reached.
3. Conduct a risk assessment
Before you move forward with scaling your business, it’s worth conducting a risk assessment to identify potential problems that might arise and build a plan to deal with them. Here are some steps to take:
- Identify risk areas. Cash flow issues, market fluctuations, new competitors, regulatory changes, legal issues, supply chain disruptions, technology failures and more could affect your scale-up plans.
- Determine each risk’s impact. Calculate the probability of each risk factor and how much it would impact your scaling strategy. Historical data and simulated scenarios can be helpful in this process.
- Implement risk management strategies. Researching risk management strategies can help you develop step-by-step procedures on how to avoid or deal with high-priority risks.
- Invest in business insurance. Getting business insurance can help protect your business assets during unexpected events like fires, cyber attacks, lawsuits or natural disasters.
- Continue monitoring risks. Make sure to regularly assess risk factors as you expand and grow your business, using key risk indicators (KRIs) to keep track of potential issues.
4. Make a finance plan
Scaling a business may require extra funds, especially if you need to hire more employees, implement new technology or build a new storefront. If your company has enough cash flow and reserves, you can use your own resources — though it means you’re risking those resources.
Another option is to apply for small business grants through individual corporations and government agencies — but grants tend to be competitive and may not deliver the full amount you need.
To fill any remaining financial gaps, consider small business financing. Here are a few of your options:
- Short-term business loans: Ideal for short-term projects, with repayment terms typically ranging from three to 24 months.
- Business lines of credit: Great for accessing revolving funds on an as-needed basis, with interest typically only charged on withdrawn amounts.
- Equipment financing: Get help acquiring or upgrading essential equipment and machinery as you scale your business.
- SBA loans: With a partial guarantee from the government, SBA loans are ideal for businesses that can’t qualify for traditional financing.
- Microloans: Loan amounts generally cap at $50,000, with options for startups, minority business owners and women-owned businesses.
- Invoice factoring: Use your unpaid invoices to access funds for your business, although be prepared to pay higher rates than other types of business financing.
5. Put together the right team
If you don’t already have a team in place, you’ll need to decide if W2 employees or 1099 workers will work best for your business.
Permanent employees are often more committed and dependable, which can benefit your company in the long run, but the hiring process could slow down your timeline. If you need extra assistance for a short period, recruiting temporary contract workers could be the fastest way to tackle your most urgent tasks. Just make sure you understand the IRS rules regarding worker classification.
Here are some questions to ask as you form your scaling team:
- What’s the ideal number of customer service staff for your business size and industry?
- Do you have enough team members to keep up with an increase in manufacturing, inventory and delivery of services and goods?
- Can you offer a decent package for full-time employees, including fringe benefits like paid vacation days and 401(k) matching?
- Do you need more managers to oversee the extra workload? Remember: It’s essential to avoid worker burnout (including taking on too much yourself).
It’s common for businesses to experience growing pains when scaling, and you might feel a strain in your company culture. Employees who were around during the startup phase may not like the structured environment of a bigger company, but you can’t run a large business without well-defined workplace policies.
Plan your policies and company culture early, and make sure your long-term employees aren’t overloaded with scaling-up tasks. Keep in mind that praise can go a long way in making sure everyone feels valued and appreciated.
6. Evaluate your technology
Scaling a business often creates more administrative work, especially during the early stages. Even if you already have systems in place, this is the time to evaluate their efficiency. Automating systems can help alleviate manual tasks, allowing your team to focus on other things.
Here are some ways to improve your business’s technological systems:
- Upgrade hardware: Make sure your team has up-to-date computers, functional printers and everything they need to accomplish their tasks. If not, you can use equipment financing to help fund new equipment for your team.
- Use a payroll service: Consider using a payroll service instead of a payroll team, redirecting these workers to other hands-on tasks.
- Streamline bookkeeping and accounting: As your business grows, so will your financial transactions. Investing in a bookkeeping service and accounting software can help you keep everything organized while reducing the need for additional employees.
- Incorporate project management systems: Even if you have project managers on your team, using a system-wide program like Asana or Trello can ensure all departments are on the same page.
- Use inventory management software: If you need help tracking and fulfilling orders, an inventory management software can automate these tasks, giving you more time to focus on scaling your business.
7. Evaluate your processes
When scaling your infrastructure, you’ll also need to scale your business processes. The processes you have in place might work well for your current team, but as you expand, hire new employees and take on new projects, consider how your processes might need to change to keep things running smoothly.
You can start by looking at how each of your employees (or each department) spends their time. Make a list of key tasks and keep an eye out for any bottlenecks that could be slowing things down. Even streamlining just a few of these regularly occurring issues can make a big difference, freeing up time for employees to focus on growth initiatives.
As you’re evaluating work processes, create written documentation for how to handle things like IT issues, sales questions and marketing requests. This will help you keep everyone on the same page as you scale. Smaller companies can store basic documentation and other training materials in a searchable PDF or Google Drive folder, while larger, process-heavy companies may want to invest in documentation software.
8. Consider outside help
As an entrepreneur, it can be tempting to take a DIY approach to scaling a business. And for some tasks, it makes sense for you to take the lead — such as creating the overall growth plan, fine-tuning the budget and applying for financing.
However, if you want your business to continue to grow, there may come a point when you need to outsource and delegate tasks. Consider seeking outside help if:
- You need an expert or specialist. Even if you have basic social media marketing skills, delegating this task to a seasoned professional will likely generate more leads while saving you the headache of figuring out your next ad.
- Your team is overloaded. Don’t wait until everyone reaches their limit — being proactive and hiring extra help can ensure your team stays happy and healthy while boosting overall productivity.
- A third-party service could save you time and money. Instead of spending time and resources on training internal staff for specific skills, it might be more efficient to hire a reputable third-party company. For example, you could use an outside HR company to vet and hire staff instead of creating your own HR department.
- You’re not sure what to do. If you get stuck when putting together scaling plans, or your plans don’t go how you expect, consider hiring an outside consultant with experience scaling small businesses.
9. Adjust the plan as you scale
While having a detailed growth strategy plan can help keep everyone on track, it’s normal for the trajectory to change throughout the scaling process. Perhaps you need to hire more staff than anticipated or the lease for a new location unexpectedly fell through. In reality, there’s no predicting how a scaling plan will play out.
The best you can do is maintain a flexible and adaptable attitude. Continue to review your plan on a regular basis, making adjustments as needed. If your cash flow takes a sudden dip, an emergency business loan could help keep you afloat. You can also get additional support from a Small Business Development Center (SBDC), such as assistance with business growth planning and management.
Next steps after scaling a business
As you scale, it’s important to keep your expectations realistic. It’s easy to be overly optimistic based on prior success, but it can take time to find your footing as a larger operation. Overall, it’s wise to move slowly instead of trying to expand too quickly.
Keep in mind that as your operations grow, there will be other moving parts within the company that you’ll need to manage. You may decide to move into a new role or create a business owner title for yourself. This could also be a good time to implement training tools to bring all staff members up to speed.
Be sure to keep an eye on accounting and financial reporting within the larger organization. With more people involved in the business, there could be a higher risk of things going wrong. Consult with a tax professional to ensure you follow all requirements for your type of business structure. You can also get a head start by following our business tax preparation guide.
Compare business loan offers