Part of growing your business is the way in which you choose to grow as well as how fast. Many entrepreneurs start a business and want to go from point A to point B quickly. They want to capture a certain percentage of market share or build up a following without the right perspective. The way you choose to grow your business is incredibly important to the sustainability and longevity of your business. Deciding to grow too fast or making aggressive investments can be decisions that hurt your business now or later and that undermine your financial well-being.
While growing a business is very important, it’s also incredibly important to do it at the right pace and time. Here are five key factors to analyze when growing your business:
1. You Can Keep The Underlying Business Going
Your underlying business is ultimately what’s driving your business’s success; its the engine. Each business needs a particular amount of capital in order to keep operating. Some companies take large risks and it pays off while other companies dwindle or go under. It’s incredibly important to prioritize your underlying business, rather than making aggressive investments in the hopes of growing faster or larger.
2. You Can Hold Onto Enough Funds
The amount of capital you have is an important factor when understanding what you can afford. People sometimes see an avenue that can produce large returns or lead to a large market share but underestimate the investment it might cost.
Here are a few questions worth considering:
- Will you be able to weather the storm until you’re profitable?
- What are the costs you’ll have to bear on a monthly basis?
- Can you afford to add X amount of dollars in overhead or costs?
- In addition to the upfront capital or investment costs, is the potential and probability of success worth the investment?
If you answer affirmatively to these questions, then you’re on your way. If you’re unsure or if you feel it might be too aggressive, then check out some lower-cost alternatives to growing.
3. You Can Afford The Opportunity Cost
The opportunity cost to grow comes down to what else you can do with those funds. Are they better used to make a different investment? The potential for a large payoff is exciting, but ask yourself these questions:
- Is there a particular part of the business that needs to be improved, enhanced, or upgraded?
- Is there a particular investment you’ve been putting off that you need to make?
- Can you afford to put funds elsewhere, or are there places where you need to invest or allocate resources?
It’s difficult to ask yourself these questions when you’ve been planning to make an investment to expand, but it’s important and necessary. Disregarding these types of questions or investments can be something that has a negative effect on your business down the line.
4. You Can Make The Right Investments
Part of growing your business is making the right investments and decisions. Companies performing well have an array of different investments and opportunities they can capitalize on. Having the patience to make the right investments, rather than just any investment, is incredibly important. Companies who make the right investments often have a domino effect on their performance, setting themselves up for the future.
While an investment may look attractive, it’s important to dig underneath the surface to understand how it provides value, what the potential payoff can be, and why it’s valuable to your business. Looking back, companies and financial analysts will see what investments they should’ve made and which ones they’re happy they made.
5. You Can Find The Right Balance
Each business has an optimal amount of capital they can invest to grow. Finding the right balance of what you can invest, the amount needed to run your business, and the amount you need in reserve is important. Once you figure out that balance, then you can figure out how much you can afford to invest in growing your business. With the right balance, you can keep your business running smoothly, consistently expanding, and in a strong financial position.
Making sure that you can afford to invest while having the financial capability to continue moving forward is important. Without it, you might be putting your business at risk. Picking the right investments, being patient, then capitalizing on them, can make all the difference in the returns you produce. Having patience and finding the right balance that works for you, your business, and what you’re trying to achieve, can help you continue to grow in the future.