Managing growth in micro businesses
The dream of 99% of small business owners is to increase their earnings. To earn more money year on year you need growth. True business success however is achieving sustainable growth.
The golden advice I want every business owner to remember from reading this blog is that success is having sustainable growth in profits – not your staff number or turn-over. This month I’m going to give you my opinions on how to effectively manage growth, how to plan for it and most importantly how to ensure it is sustainable and profitable.
It is crucial that growth is understood in a small business otherwise costs could soar and profits could dip. To ensure you get practical hands on advice you can use, I have detailed my key rules to growth.
Rule one – Don’t get distracted
Maintain your (and your staffs’) momentum to growing your business. To ensure that you are aware of your growth you should re-focus your attention quarterly not annually as you’ll want to split your time wisely between working in the business and on the business. At the end of each quarter, if you’re behind, forget growth and focus on getting back on track. If you’re ahead, brainstorm new ideas or opportunities and agree who will take action.
Rule Two – Understand the past to grow your future
Planning educated growth figures is not a guessing game so it’s important you understand them exactly and have set targets. I educate myself by mapping back over the last 3 years important figures.
Doing so not only gives you awareness but confidence in how you are doing. I genuinely believe that understanding your numbers makes you a better leader and able to make more educated decisions that create growth.
I would recommend you sit down and map out the following sales management information for the last 3 years:
- Unit sales per month
- Turnover per month
- Gross profit per month
Once you have done this, map out the following financial information either yourself or get your accountant to help:
- Cost base per quarter (This includes staff)
- Net profit per quarter
Managing your current sales performance against targets and growth goals will ensure you are being proactive. The financial tracking needs to be done quarterly to ensure any spending is in line with the budget. If you don’t have a budget use lasts years cost as a guideline. If you are making more but spending less you are onto a winner.
Rule Three – Keep it real.
“Turnover is Vanity – Profit is Sanity”
Bragging about your turnover is meaningless unless you are increasing your profits. Growth in the wrong area is dangerous for a micro or small business too. Lifting your turnover but reducing your gross profit in order to do the deal can lead to catastrophic costs if you need to employ more people to fulfil the extra work you have won.
I always base my growth targets around gross profit not turnover as doing so ensures I am never a busy fool who sells more but makes less.
Rule Four – Plan and understand how
I keep everything simple and set a plan each year which both my team and I have had input into.
As I have tracked my historical performance I can easily calculate the actual growth that has been achieved per year, I then plan for a growth percentage in addition to this. If your figures have decreased then your first plan should be to get back to where you were last year or the year before.
I have detailed below a quick guide to setting a growth plan:
- Understand the area you want growth and plan based on gross profit.
- Work out what amount of growth you want and keep this realistic as its demotivating if your team do not achieve it.
- Meet on a quarterly basis with your staff so they can help plan and you gain their buy into your goal.
- Work out your averages per deal and then calculate this back into the number of increased sales required.
- Set clear sales targets and work out a plan with your sales people of how the additional sales will be achieved.
- Check your affordability of the increased marketing or staff costs.
- Work out staff productivity levels to understand if you need to recruit.
- Set a clear time line for the additional growth, sales activity and revenue generation to be complete (financial year).
Rule Five – Be smart and make more out of what you have
I am the queen of conversion. I love walking into a business and generating growth without them spending any money on increasing staff or lead volumes.
Conversion to me is the absolute key to growth as if you do not manage it effectively you will never be as profitable as you should be. To truly understand your conversions you have to understand the sales process in your business. I have mapped out a very simple sales structure below:
- Lead – Appointment
- Appointment – Quote
- Quote – Order
- Order – Invoice
- Invoice – Revenue received
Understanding your conversions helps you understand where you are losing money. If you plan for growth and invest in your marketing to generate more leads but your sales staff can’t convert you have wasted time and money.
If your business could benefit from conversion advice, feel free to contact me directly.
Rule Six – Report and reflect
Acknowledgement of growth is an important aspect to managing it. You need to set up regular, accurate reporting that measures the current business and staffs performance. I always measure against two indicators:
- Actual performance year to date against current budget
- Actual performance year to date, against the previous years.
Rule Seven – It’s all about the money
I am sure some people will disagree with me on this but in my opinion the growth of a small business should be focused on two things. Money and stability. I don’t run a charity, I run a business so the more I take home the happier I am. Staff make me money not cost me money.
How big your office is doesn’t impress me, how many staff you have doesn’t impress me. What increased dividend you can afford to take at the end of the year does.
In a nut shell, manage your costs well, increase the number of deals you do and either maintain or increase your gross profits and you will have growth.