How to Prepare your Finances for a Successful Business Scaleup

The move from startup to scaleup is an exciting time for small business owners. The business has reached a place where the revenue growth and customer satisfaction and referrals are consistently high and stable. Now there’s room for the business to expand to meet the increased customer demand and create the potential for more revenue.

But expanding a small business can be a substantial undertaking and come with financial challenges. It can involve an investment in hiring more staff, more equipment and inventory, or a new location that may require permits, zoning approvals, licences, and marketing.

While business owners don’t want to miss out on a good opportunity to expand, being under-prepared for a scaleup can lead to costly mistakes or unsustainable growth that can damage team morale and customer experience. For a successful business scaleup, it’s important to have a plan and strong financial processes in place.

Here are four considerations when scaling up a small business for long-term profitability.

1. Create a Concrete Scaleup Budget

Expanding a business involves additional costs above the budget of running the regular operations of a business. Scaleup expenses may include the costs of extra equipment, inventory, marketing, hiring and training staff, and/or expenses of a new location. Creating a scaleup budget will help prevent overspending so that you can allocate resources and manage cash flow accordingly. It can also help inform strategic decisions like exploring funding options if needed. 

It’s essential to also create a projected financial overview of the expanded business, including short-term projected revenue, projected expenses and projected profit. This will help with budgeting for the scaleup and cash flow management. We advise clients to err on the side of caution and overestimate expenses and underestimate revenue when planning to scale up.

2. Solid Cash Flow Management

If you’re in a position to expand your business, chances are the business has healthy cash flow month to month. As any business owner knows, insufficient or mismanaged cash flow is one of the top risks to a business and so having strong cash flow management is instrumental to scaling up a business successfully.

Expanding a business will require more financial resources, which can put a strain on cash flow if there is not enough growth reserve funds to finance the new expenses. You’ll also want to plan to have enough saved to keep the business going in the event of an economic downturn or unforeseen financial circumstances. 

3. Explore Funding Options

To meet an increase in customer demand, it may be necessary to seek funding to expand the business. Be sure to consult with your trusted accounting team on what funding you’re looking for so that they can help guide you to the lending options that would best match your needs and be in your financial interest to use. This might be a small business loan, commercial real estate loan, working capital loan, equipment purchase financing, purchase order financing, lines of credit or other type of financing. 

Lenders will expect a solid financial plan to consider giving a loan, including financial statements to review the financial health of the business, its profitability and capacity to repay the loan as well as a financial forecast, in some cases, up to two years. If the idea of putting together a loan application already seems overwhelming, not to worry. Your team at Finatics Accounting can help assist you through the process.

4. Monitor Metrics

Once your business has scaled up, you’ll need to continuously monitor the financial metrics. This includes not only the cash flow but also metrics such as revenue, expenses, net income, budget vs. actual, burn rate, churn rate, return on investment (ROI), optimization, utilization and profit margin. The metrics and indicators will help you to evaluate the scaleup performance and identify any issues or threats so you can strategize accordingly.

Expanding a business is an exciting time and can lead to great rewards. By planning ahead and strategically, you’ll be able to set your growing business up for success and financial well-being.

Ready to get started on preparing a successful business scaleup?  Book a consultation today.