The risks of growing your small business

“The only strategy that is guaranteed to fail is not taking risks.” – Mark Zuckerberg

There comes a time when every successful enterprise needs to ditch the baby steps, put it all on the line, and take a giant leap forward. At that point, the decisions you make will determine whether the next phase involves growth and prosperity or financial breakdown. With smart risk management, however, and a tailored insurance plan, your business will be in the best position to come out the other side of its growth spurt with its name, product, and bank balance intact.

Here, we’ll identify the four major hazards that growth can pose to your business and broadly establish some ways to moderate your exposure.

1. Debt – The Ultimate ‘Frenemy’

Growth isn’t cheap. You will generally need a large lump sum of cash if you want to open a store, buy new equipment, put on more staff, create new lines, build a website or take on a whopping big contract. You’ll also need working capital to pay the bills and keep the machine running until the investment starts paying for itself. It all adds up.

Most businesses will need to seek out a loan to expand. Not all, of course; some businesses will have a cache of savings to draw from, while others will turn to angel investors or venture capitalists. But these are the lucky few – for most of us, large lump sums are beyond our financial reach and lenders provide the only viable option.

Debt also has a sting in the tail; repayments include interest and fees which will need to be paid, regardless of how successful your expansion is. Fluctuating rates can also add a second layer of uncertainty to your payment schedule if a variable option is taken.

So What Can You Do?

1. Firstly, borrow within your means. Many business owners take on too much debt with repayments they can’t sustain, or a succession of debts to pay off previous debts that they weren’t able to service. Avoid debt cycles and don’t over-borrow just because you can.
2. Negotiate with lending institutions. Compare packages. Take the time to scan the terms and conditions and don’t be afraid to ask questions or make demands.
3. Get a good accountant! Interest payments charged on business or investment loans are tax-deductible and should be used in the most efficient manner.
4. Consider employing the services of a business loan broker, especially if you’re unfamiliar with lending practices. Most brokers are funded by the lender, so this shouldn’t cost you a thing. Seek out solid and trustworthy referrals from other business owners and be sure to do your own reference checks.

2. Quality – Keep it up, Baby!

Ultimately, you’re selling a brand. If your business expands too quickly, or without the right strategy to replicate the quality your clients expect, you run the risk of producing a sub-standard product, alienating your clients and ultimately diluting your brand.

Ask yourself if the business is scalable. If you hire some help, could they do the job as well as you, or is your unique skill the asset that people are paying for? In other words, is it feasible to operate on a much larger scale? Not every business has the scope to amplify operations and maintain quality. The danger here is that without the quality control you personally provide, the business could become a second-rate version of itself and, more importantly, a disappointment to your clients.

So What Can You Do?

1. Make your standards a priority. Your business is good at something, and that something is what your clients pay for. Keep it good.
2. Grow your support channels in line with everything else. The bigger your business becomes, the more support it’ll need. This might mean hiring a part-time bookkeeper to help with managing invoices, or a client services professional to assist clients with their queries.
3. Know your business. If it isn’t the type of enterprise that can scale up easily, don’t force it.
4. Listen to your customer. The people that buy your stuff can also double as a free, open-source advice panel. If they’re clamouring for an improvement, look into it.
5. Love your customer. If greater production gives you the opportunity to have a lower price point, consider passing on a discount to your clients. Even if it doesn’t, sacrifice some margin occasionally for special offers. Love them and they’ll love you back.

3. Staff – Keep your peeps

Overworked and underpaid staff will not stick around. If morale is low amongst the team and a healthy workplace culture is not in place, staff will move on and take vital knowledge with them. Hiring new staff is expensive and ultimately futile, because if the same problems exist you’ll not only have to offer more money to bring the next batch on, but they’ll end up leaving as well.

The quality of management can also decline with rapid growth. If management resources are stretched they tend to be reactive, instead of proactive, and are constantly ‘putting out fires’ instead of designing and refining processes to improve and update operations.

So What Can You Do?

1. Don’t skimp on staff numbers. You will not only burn out your staff, you’ll inhibit sales and frustrate your clients.
2. Engender a fun, supportive and winning culture. Engage with your staff and they’ll become invested in you and the business. Be clear and specific about your expectations and inspire them to love the business as much as you do.
3. Give management the space and the autonomy to lead effectively. Let them take ownership of issues and show support for their decision making. If they’re off track, take the time to explain why. They are your proxy when you’re not around, so they need to understand.
4. Hire the right people. Do thorough background checks and utilize probationary periods to assess suitability. Sometimes really good people are just a bad fit.

4. Insurance – Protect your ass (ets)!

The right insurance is crucial during periods of expansion, and there is a huge risk in playing catch-up with your policies. As your business grows you’ll require an insurance package that is as robust as the business it protects and caters to all of its risk factors.

The range of insurance options on the market is vast nowadays, but you don’t need to insure against everything under the sun. As your business grows, however, and your investment becomes more and more significant, the amount of risk you take on increases exponentially. Insuring against expensive legal claim events should be your number one priority and your jump off point. From there, it’s in your best interest to do a full risk audit, and decide what other special insurances your business needs.

The little things might be able to take care of themselves, but the primary insurances – public liability and professional indemnity – are crucial. Ignore them at your peril.

So What Can You Do?

1. Insure your legal liability! Public Liability (or ‘PL’) covers claims against personal injury or property damage to a third party and can include Product Liability to cover damage caused by things you produce or sell. Simple slips and falls can cost hundreds of thousands of dollars in legal costs and compensation, as can the odd faulty product. This cover is essential. Professional Indemnity (‘PI’) is different in that it protects you against financial loss from any legal action taken out because of negligence, errors or omissions on your behalf. PI is critical, and in many cases mandatory, if your business provides any type of professional advice or services rendered.
2. Assess what business property you need to insure. Do you own your premises? Do you have expensive tools or equipment? Are your business valuables often in transit between locations? What’s the value of your contents? Is your area prone to theft or glass breakages? What about electronic equipment – would the loss or breakdown of these items hurt your business operations?
3. Look at cover for Business Interruption. Assess your ability to cover your costs if you were unable to operate your business at full capacity for a few days, a month or even a year.
4. Consider Cyber Liability insurance, especially if your business relies on a website or online activity. Malware is becoming more prevalent and increasingly sophisticated, as are the more traditional hacker weapons like phishing scams, DDOS attacks and session hijacking. Cyber Liability insurance may not prevent an attack, but it will help you deal with it and take care of business interruption, data recovery, and even extortion costs.
5. Protect the money. This is about more than Business Interruption insurance, which covers lost income due to an insured event. You also need to protect your business’s greatest asset – you, and your ability to earn an income. Consider personal accident insurance, as well as illness cover.

And remember…

Evolving your business into something bigger and better takes guts. But courage is just the start. As you progress, you need to get in the habit of savvy decision-making and deft avoidance of the kind of mistakes that could pull your business under. Of course, you also need to be able to make mistakes, pivot, and keep making mistakes until you get it right.

The key to keeping your business moving forward is damage control. Don’t mess up too bad. Exercise fiscal responsibility and manage debt wisely. Nurture and protect your brand by maintaining standards when it comes to management, as well as the product or service you’re famous for. And above all, insure your business against the kind of events that have the singular power to financially ruin it.

Risk is your friend, and while you need to embrace it, you should also keep it in check. You’ll never eliminate it completely, but the risk you do take on needs to be calculated, controlled and covered by a comprehensive insurance plan.