Transitioning from a small to a medium business is a process that leads many start-ups to failure. As businesses grow organically, they begin to outgrow certain elements of their business, such as staff numbers, premises, business processes, software/storage, accounting practices, stock management and more. There are many important aspects that a business owner needs to consider when making this transition, and the process will inevitably include many challenges along the way.
But the transition is possible when you make sure to apply the following easy steps:
1. Start Using an ERP
Of course we would put this one first on the list, but the power of business management software to track your business processes can’t be understated when it comes to smoothly and effectively growing your business without compromising service or product quality or profitability.
Business management software, also known as an ERP system, integrates all business management functions into one convenient platform that gives you ultimate flexibility and more control. ERP software includes essential functions like financial planning, inventory/materials management, payroll, order processing, invoicing, human resources, and so much more.
One of the biggest benefits of an ERP system is the ability to see what is going on with your business during the transitioning process in real time. Since transitioning often involves a higher volume of business processes, an ERP can be very handy, as it provides solid operational backbone for your company.
To list just a few of the benefits of using an ERP:
- Streamlined business processes with a single integrated system
- Improved customer satisfaction
- Improved workflow and productivity
- Reduced redundant data entry
2. Think about the Wilson EOQ Model for Better Inventory Management
When it comes to inventory management, many growing companies find themselves unable to determine the right stock level. Since the demand is higher now, it can be difficult to decide how much extra stock you need. While too much stock can lead to bigger expenses, too little stock may greatly impact customer satisfaction and cash flow.
Devised by Ford W. Harrison and applied by R. H. Wilson, the Wilson EOQ formula can help you effectively determine the optimal order size for a given unit of inventory. This formula represents the number of units that your company should add to inventory with each order to minimise the total costs of inventory (order costs, shortage costs, etc). Usually, the EOQ formula is part of a continuous review system that includes consistent monitoring of the inventory level. When inventory level reaches a specific reorder point, fixed quantity is ordered.
In essence, EOQ allows for accurate calculation of the appropriate reorder point and the optimal reorder quantity in order to ensure replenishment of inventory with no shortages. Variables in this formula are:
C = Carrying cost per unit per year
F = Fixed cost per order
D = Demand in units per year
3. Consider Financial Implications
As your business is growing from small to large, you need to take into account a number of financial implications and higher costs for staff, production and facilities. To overcome these issues, growing companies need to collect all outstanding debts quickly, negotiate to decrease supplier costs since you will be buying larger quantities and reduce costs by eliminating unnecessary inventory overhead.
Also, make sure to keep an eye on key performance indicators such as the costs of acquiring a customer as well as the lifetime value of a customer. When you transition from a small to a mid-sized or even large company, you quickly add customers, so if you’re spending a lot to acquire a customer while operating at a loss, you’re in trouble.
Lease a Larger Space
It’s not uncommon to see small businesses outgrowing their existing space. If your company is growing very fast, consider a short-term lease, or an executive suite, which may cost more per square foot, but may also offer flexibility for upsizing and downsizing. Both options will help you determine just how much space your business really needs after you go through the growing period.
If your business is growing and you’re finding it increasingly difficult to keep track of all elements of the business and how they interconnect we can help you. Contact us today for a consultation to find out if MYOB EXO has the power to help you manage your business growth without compromising your service or profitability.