Growing a sole trader business isn’t rocket science – as an accountant, I’ve encountered my fair share of companies wanting to grow but not sure how to spot the opportunities for growth or potential warning signs to hold off.
The key to growing a Sole Trader business is to reinvest any available cash you have. Available cash should be considered as the amount of cash left over after accounting for a few months worth of business expenses.
It’s worth noting, you can’t just flip a switch – you need to look for ‘growth’ signals. Unfortunately, these signals may be difficult to spot and could go unnoticed – in this article, we’re going to cover these signals so you don’t miss a single opportunity!
Signs that you should look to grow
There are a few signs that you’re good to go with your growth plans. Growth plans could be around renting a new warehouse, expanding operations or even just taking on another employee.
Without further ado – let’s take a look!
Spare cash
A clear cut sign that you could potentially look to grow your business is if you find that your bank balance keeps growing and growing.
With excess cash comes a wealth of opportunities for growth – this could be employing someone new so you can take on more work or take courses so you can learn and start diversifying your offering.
However, don’t spend all of your cash – try to keep a good few month’s worth of expenses in the safe. You don’t want to be delayed being back and not be able to pay your supplies – that might actually shrink your business!
Strong demand you can’t satisfy
Another great sign is if you’ve got more orders coming in than you can handle! This is quite an obvious one but if the stock is flying off the shelves or you are fully booked and still have more enquiries – think about ramping up operations.
Depending on your business, you should try to increase the amount of ‘supply’ that you can produce – whether this is increasing your workforce if you’re a services based business or space for inventory for goods based businesses.
However, like with the first signal – keep your eye on cash. You may need to hold off on dropping the hammer until you’ve got the cash available. If your customers pay on credit, this may not always be immediate.
You need a change
The final sign is you just need to shake things up a bit. If you feel like you’re falling out of love with your craft and you want to spice things up – you can look to make a change.
Inevitably, growth will be a by-product of this – offering a new service or changing things around (increasing productivity/efficiency) is going to help bring in more revenue.
Sometimes this is needed to help the longevity of the business too. If you start to resent the commitment of the work you do – the business will likely not last long if you quit a few months later!
Signs that you should not look to grow
It’s all well and good knowing when you should grow but you need to make sure that none of the ‘don’t grow yet’ signs aren’t showing if you want to push into a ‘growth’ phase.
Have capacity to take on more work
If you’ve got sufficient capacity to take on more work, you will want to focus on attracting more work so that your workforce is fully utilised.
This point is more for the permanent growth – when I say permanent growth, I mean upgrading facilities, etc. These methods of growth cost quite a lot and are useless if you aren’t currently fully using your current work space.
By pushing yourself to your capacity – this will show profits growing, however this should be the priority for the time being until you hit a limiting factor (like warehouse space or man power).
Low demand
Another sign that you should hold off of growth is if there is not much demand for your products/services.
It would be at this point that I would review my business plan and see WHY there is low demand. Are you not marketing properly? Are you offering a service/good that is soon to be obsolete?
Once you’ve identified the issue, put steps in place to overcome this – you’ll soon find yourself at the point where you’re showing all the signs for growth!
So how do you grow?
Now we’ve identified what you should be watching out for – whether it be to ramp up growth or take a step back. How do you actually ‘grow’?
Reinvest your cash
We mentioned this briefly before but you should look to reinvest as much of your spare cash back into the business.
Don’t think of this as ‘spending’ the spare cash – this is an ‘investment’ in your business. The items you are buying will ultimately generate you more money in the long-term.
The next step in reinvesting your cash is to identify what your most limiting factor is when it comes to being able to satisfy your increasing number of orders.
Will it be that you don’t have enough employees to send out/delivery the services/goods? Will you run out of stock/supplies to deliver your services? Will you burn through your marketing budget before the end of the period?
Once you’ve found exactly what you need to improve – invest the cash accordingly to maximise your growth potential.
Summary
To summarise this post – before looking to grow your Sole Trader business, you need to ensure you are seeing at least one of the following signs:
- Excess cash (above what you need to spend for normal business activity);
- Demand is exceeding your capacity to supply; and/or
- You want to make a change.
On the flipside, make sure you aren’t showing any of the following if you do decide to push for growth:
- Have capacity to take more work on; and/or
- Have low demand for your goods/services.
Finally, the key to growing (after weighing up the signs to push forward) is to ultimately reinvest your cash. Cash is the lifeblood of business so if you’re really serious about growing any business, you need to speculate to accumulate.