Contributor Report: 5 ways to know your business is ready to scale

If you’re in a position where you’re considering scaling your business, congratulations! That most likely means you’ve already started a business and you’re realizing some level of success. Business ownership is hard, often thankless work; you know, you’ve been doing it already. But in evaluating the possibility of a scale, you’re demonstrating a desire to do more — and you should know it’s not going to be easy.

Whether you’re hoping to hit a new revenue goal, provide gainful employment to more people, or expand your service offerings to reach a wider range of customers, scaling can be a great decision — but it shouldn’t be approached without a substantial amount of planning.

Twenty-seven years ago, I joined up with a small-town ophthalmologist; today, that practice serves nearly 200,000 patients at eight locations in seven cities and performs more than 8,000 surgical procedures annually. I also serve as Chief Manager of a collection of enterprises operating in the healthcare, real estate development, and property management industries, and I consult startups and small businesses on achieving their goals.

Suffice it to say, I have a lot of experience in scaling businesses. Today, I’d like to share five markers that can help you determine whether or not you’re ready to scale.

1. Your desire is strong enough to overcome the challenges.

Are you sure you want to do this? Really.

Especially if you’re in a brick-and-mortar business — maybe you’re going from one location to two or three, which has been the majority of my world — you have to understand that you’re walking into an entirely different experience. Depending on how long your original location has been in business, you (and your employees) already have your own way of doing things. If you’re acquiring another business, realize that you’re going to have to find ways to merge their processes with yours.

In my opinion, merging is actually harder than starting out, and that’s because of all the people involved. Keep in mind that it’s not uncommon for people to quit — either on your own team or on the team that you acquire. This means you may wind up short-staffed with a larger load of work.

You may also lose customers, and your cash flow is going to be impacted. These are all things that you can overcome, but they’re realities you have to consider — and plan for — soberly.

2. Your legal structure is established and sound.

Sure, addressing your business structure and legal supports isn’t the most exciting part of scaling, but they are absolutely necessary. Are you crossing state lines? Does the state you’re going to have good corporate law — and are you incorporated at all?

I’ve seen and experienced the types of things that can bite you down the road because a business wasn’t prepared for that type of expansion. Be sure you understand your own structure and the goals you’re working to achieve with your expansion, and then get with your attorney to discuss the nitty-gritty details. If you’re buying, acquiring, or merging with another group, it’s also critical to understand how that group is set up.

3. You have a good handle on your accounting — and what you need to scale.

This is similar to my legal advice above, but there are so many questions to ask regarding accounting and taxes. What type of accounting is your team used to doing? What type of accounting is the team you’re acquiring used to doing? Can you read your own books? Can you read other people’s books? Is your current accounting firm equipped to handle your plan — and better yet, do they want to?

Your accountants are an important part of your team. They’re there to help you plan and can actually help you get to where you’re trying to go. It’s imperative to keep them in the loop as early as possible to help you map out your next steps.

4. You have a good relationship with your bank.

Just like your accountant can help you plan to scale, your bank also needs to know what you’re doing.

Think through the way you process payments — credit cards, ACH transactions, checks, cash — and whether that volume is going to change dramatically when you scale your business. The new revenue streams, vendors, and payers coming in may require some extra vetting on the banking side, especially when it comes to credit cards.

Access to capital is also a huge component of scaling. You need cash flow to operate, and you may wind up with shortfalls while adding a new location, acquiring new equipment, adding headcount, or tackling other common needs for a scaling business. It’s not unusual for more bills to pile up than you have money coming in for a while. Be prepared to secure and manage a line of credit large enough to handle what you need.

Thinking through all of this may even require switching to another bank if your current institution isn’t set up to accommodate your growing needs. Figure this out proactively, rather than learning the hard way when you’re in the thick of inevitable growing pains.

5. Your back office operations are in good shape.

The absolute most important part of any business is getting paid. So with that in mind, think: Are the people who do your accounts receivable and accounts payable equipped to double, triple, or quadruple their workload?

If your team isn’t large enough to handle the influx, hire someone early enough in the process to get trained prior to your planned growth phase. Why? Say you have two people who handle AR and AP. When you hire someone new, that takes time away from both existing employees as they work to train up the new hire. Now you’re operating with 1.5 people when you really needed three. Get everyone ready before it’s mission-critical.

Preparation leads to payoff

If you’re reading this article and thinking, “Man, I have some things to work on,” don’t be discouraged. Taking a little longer to approach that next step is far better than getting started without enough preparation. In the long run, you’ll be glad you did.

And if you’ve been nodding along because you’ve already got these things under control? Good luck, and Godspeed.

About the author: Ray Mays serves as the CEO at Eye Centers of Tennessee and is a Co-Founder of the Upper Cumberland Entrepreneurial Foundation. Featured photo is from Unsplash.