Expansion Is Good For Your BusinessThere are many advantages to running your business as an owner-operator. However, the real drawback is that your potential earnings will always be limited to how much work you undertake. Once you’ve got your business up and running you should then start looking at ways that you can grow your operation with the ultimate aim of having others do the work for you and so you make a profit from their labour. The advantage to your customers is that now you’ve expanded you can give an even greater service, while the advantage to your local economy is that you’ve created extra jobs.
However, a potential disadvantage is that your future role will include recruiting and supervising staff with the extra headache of making sure you not only have enough work for yourself, but also for all those extra mouths your business now has to feed.
You’ll also need to consider that although your turnover may increase, so too will your operating costs, which may mean that initially at least you see a fall instead of an increase in your profits.
You’ll also have to think about how you’re going to get extra work to justify increasing your workforce. Another potential side-effect of expansion is that you lose a degree of control over the quality of work you offer. This happens when you can no longer supervise every job yourself and have to rely on the professionalism and honesty of your staff, which is why it’s vital at this early point to realise that your business can only grow successfully if you have the right people.
While I would certainly recommend you expand your business as I believe being an owner-operator is far too limiting and, in the long run, you’re only employing yourself as opposed to running a business – I would also recommend that you get your business up and running and on a solid footing before you consider expanding to include more staff and taking on commercial contracts.
Over the past few years I’ve seen a number of promising gardening businesses come unstuck because they’ve grown either too quickly or not at all. The secret is to get the balance right. Begin small and work your way up. Don’t get disillusioned initially if, when
you decide to grow your business, those commercial contracts don’t come flooding in. Expanding your business is probably one of the most difficult things you’ll ever have to do with it, so take your time and get it right.
When my business expanded, I wasn’t prepared for just how much extra work I was going to have to do working
on my business, as opposed to
in it. Where previously I was out there working on gardening jobs, I was now spending days meeting prospective commercial clients, recruiting staff, estimating and all the increased administration that goes with it. My biggest mistake was when calculating my initial sales forecasts, I’d included my working in the business as I had before – cutting hedges, lawns, garden maintenance, etc. The impact on our profit was unfortunately painful and unforeseen.
So before I show you how to grow your business, I first want to run through the factors that you will need to consider and get right
before you even think of expansion.
The areas you need to address before expanding your business:
- cash flow
- staff
- VAT
- insurance
- health and safety.
Cash Flow
In Chapter 2 I showed you what’s involved in preparing an initial cash flow projection for your business. I cannot stress enough that the one thing you must get right in your business is cash flow. Forget everything else! Your gardening skills, sales skills, administration skills etc will be of no use if you run out of money. You’d also be amazed at how easily and quickly this can happen.
For example, let’s say one of your clients asks you to clear out a large, overgrown garden and once cleared undertake some re-planting work. You estimate the job will take you about a fortnight or so and away you go. If you’ve followed the advice in my book, you will where possible hire specialist equipment as opposed to purchasing expensive equipment
that you won’t regularly use. So with this large job will come the initial costs of hiring equipment, fuel, etc. You may also have to hire additional labour for the job, which will be another cost to your business.
If the job goes on for two weeks you may find that your casual staff insist on being paid weekly; so you have yet another demand on your cash. Then midway through the job the weather turns foul, either slowing you down or stopping you completely. So the job you thought would take you a fortnight is now turning into three weeks and might even go on for four weeks, which means you’ve no cash coming into your business for a relatively long period during which you’re having to pay money out.
Imagine for a moment that instead of having just one job on for a fortnight you have a number of similar jobs all requiring you to hire additional equipment and staff. Then you’re hit with bad weather and enforced delays. The hire company won’t care if you’ve been able to use their equipment – if it’s out of their yard and on hire you’ll be billed. Although you might be able to cancel your staff from working on the really bad days, chances are they’ll be there during some of the weather either sitting in the van sheltering from the rain or in a café sipping tea and all the while you’re paying them.
As you can see, if you’re prepared for these sort of eventualities you’ll have in place either sufficient working capital to see you through, or have a line of credit, for example a pre-agreed bank overdraft open to you.
My own experiences made me introduce a policy whereby we only have one large project on the go at any time. I much prefer our order books to be full of short jobs – a half or a full day’s work as opposed to anything longer. The advantage with this is that you’re in and out without complication; bills are settled each day, which creates positive cash flow and the weather doesn’t impact too much as the jobs are short enough to be able to cope with the weather.
You could of course operate like many small builders who fill their order books with as many large and small jobs as they can and then chip away at each of them without finishing any on time and upsetting customers in the process. My view is that you should
keep to your promises wherever possible and ensure that your diary is always manageable.
Most people who start their own business have no real idea of how difficult it can be to maintain positive cash flow. Very often the problems that can impact on your cash flow are outside your control. For example, Richard Branson’s first mail order music business came to a grinding halt because of a postal strike, something that couldn’t have been foreseen and effectively closed his business.
So please don’t underestimate the importance of cash flow for your business. Remember even if you insist on having your invoice settled on the day the work is completed (the way we operate our business), you still will wait about a week for the cheque to clear your bank.
It doesn’t matter how big or small a business is. The main factor that can cripple any business regardless of size is negative cashflow – too much money out and not enough coming in. Even the most efficient businesses suffer cash flow crises and rarely is it the fault of poor quality work or inferior products. Usually it can be attributed to those factors outside of your control including how quickly your customers pay you, prolonged bad weather and staff sickness.