When you started your green industry business it was clear that you would invest into your business initially, and then in the future you would reap the benefits of that investment. For companies that continue to scale and succeed, this investment in the startup phase is just the beginning!
The illustration above depicts the journey that a business goes through when it scales. Unfortunately, revenue growth is not directly correlated to the business expenses that are needed to grow. Your revenue and expense’s trend line experience different levels throughout the course of scaling. The main reason for this is labor expense and the timing involved with hiring decisions. Many times you will need to hire employees ahead of time in both the field and administratively. Hiring “ahead of time” means that you don’t yet have the revenue to support the employee, but you are making the investment now instead of over-working your current team. For high growth companies this is commonplace, but also a main reason that expenses may be higher when compared to a company that is not growing.
In the above graph you can see that at point A the business is experiencing high revenue levels when compared to the expenses of the business. This could be in a situation where a business is reaching their work capacity with their current resources and team, whether it’s a solo operator or a company with multiple divisions. Then at point B there is a point where an investment needs to be made to reach the next level. In the case of a small business, it could be an owner making key hires so they can exit the field. In a larger business it could mean hiring additional management or sales staff to start growth in their current or new service-line or location. You can see that at point B once the investment in labor and additional resources is made, the expenses rise when compared to the total revenue available. It’s okay to experience this, it just means that you are setting yourself up for a return on your investment (ROI) in the future. Think of this just as you thought of the initial startup costs when you started your business!
You can see in the graph that as the business scales the company hits a similar situation again at point C, where more investments are made into the company. Just like in Point B, the company experiences high expenses when compared to the revenue at that point in time. Those investments become worth it, because then you hit a place like point D where you are at above industry average profits with resources being used at a higher capacity level.
Having accurate and timely financial data will give you the confidence to make these ROI based decisions, but are there ways to limit the negative impact of points B and C? There sure are, below are a few points to consider:
– Utilizing fractional staff and/or subcontractors when possible: instead of hiring a full-time employee ahead of time, instead pay only for the work needed by having a mix of fractional or subcontracted staff.
– Rent equipment when it makes sense to do so: renting may help cash levels at certain points during your company’s growth path, especially if you don’t plan to utilize the equipment more than 30% of the time.
– Implement software: you may be able to reduce or delay hiring needs if you can implement software for project management, customer relationship management (CRM), marketing, sales, recruiting, etc.
What investments back into your business will you make in the upcoming year? We will be having a webinar on December 14th to cover budgeting and financial planning for 2023. It all starts with having a plan! Register for the free webinar here.