Expanding a business: what to do to avoid going broke.

Increasing sales does not always bring profit, and sometimes it is worth refraining from hiring new employees.

Alexander Afanasyev Founder of the consulting bureau “ Neskuchnye Finance ”.

Anyone who wants to earn more has probably thought about scaling their business: opening a second sales point or branch in another city, hiring new employees and selling a million times more. Alas, you cannot expand your company with a click: this can become very painful, even leading to bankruptcy. After all, if the business finances are a mess, then you will increase the mess, and you may not be able to cope with a large amount of chaos. We'll tell you how to expand and not go broke.

What not to do when scaling

1. Hurry up

It usually happens like this: I looked at a powerful competitor and decided that I want the same thing right now. Doing business this way is very risky: after opening new outlets, the company will definitely start operating at a loss, because as revenue increases, expenses will also increase.

A case in point is myself. Once upon a time, my friends and I opened a pancake shop in Chelyabinsk. We made good money, I bought myself a Mercedes. Then I thought: why not open more pancake shops, since everything is so good.

No sooner said than done. We took out loans and suddenly there were six pancake shops. But no one drew up a scaling plan, so very soon there was not enough money even to pay employees.

As a result, I left the business with a debt of 1.5 million rubles and without a car.

2. Expand your staff unnecessarily

It seems that the more employees a company has, the more it earns. It is not always so. Many entrepreneurs hire people, and things immediately get worse: profits do not cover expenses.

This was the case with our client Vladimir. He built baths alone and earned 200,000 rubles a month. I decided to scale up: I hired workers and managers. There was more revenue, but the expanding salary fund completely ate it up.

An important point: the larger the company, the more positions it has. If you had one salesperson, you can't just hire four more. You will need a head of the sales department who will be in a higher position. An expanding office needs an office manager, and so on.

3. Chase revenue

If you only strive for revenue growth, you may miss the increase in expenses and they will eventually eat up all the additional profit . Also, at a certain stage of increasing sales, the average check decreases - this also needs to be kept in mind.

Our client Denis doubled his store's sales and earned nothing. He focused on the quantity of goods sold so that as much money as possible would come to the cash register. But if there is nothing before your eyes except revenue, chaos begins to reign in the business. The margin in Denis’s store fell because no one was monitoring it: the supplier could raise prices, but Denis was not aware. The money lived in four wallets: in a current account, in cash, in accounts in Kiwi and Yandex.Money - it was difficult to keep track of profits and expenses. There was no payment calendar - it was unclear when the money would arrive and when it was necessary to pay. In general, a complete mess.

What must be done

To scale your business and not go broke, you need to follow three simple steps.

1. Plan not only revenue growth, but also related expenses

Calculate how much spending will increase if you have to produce more goods or provide more services. Don’t forget about non-obvious expenses: organizing jobs, increased taxes , the necessary creation of new positions, and so on.

2. Calculate the financial result from hiring new employees

Estimate how much revenue the employee will bring in and how much it will cost to stay in your company. You will see what results a new employee must show so that you earn money and not lose money.

3. Find out the break-even point

This is money that needs to be earned in order not to go into the red. Calculate all the company's expenses and add the reserve to them - this will be the break-even point.

There is a tool that allows you to do all this in no time - a financial model.

How a financial model can help

The financial model digitizes business , that is, it represents all business processes in the language of numbers. It makes it easy to plan expansion, hire new employees, calculate the break-even point and, most importantly, understand whether it is possible to scale at all.

1. Plan wisely

The financial model combines all key business indicators and demonstrates how their changes affect net profit. You play with the numbers in the table and see what happens to the profitability.

2. Hire effectively

A financial model will help calculate the financial result of hiring an employee or show what will happen to the business if the employee’s salary is increased. This way you will see what results need to be achieved so that the company does not become poorer after expanding the staff or changing someone's salary.

3. Calculate the break-even point

Using the financial model, an entrepreneur can understand what indicators he needs to reach the break-even point. It can either reduce business costs or increase revenue. Solutions may vary. The main thing is that the financial result is acceptable.

4. Find out if you can scale at all

A financial model helps figure out whether sales growth will actually have a positive impact on the company or whether it needs to hold its horses. There are business models that, in principle, cannot be scaled (and this can also be clarified using numbers).

If you are an entrepreneur and do not use a financial model, you need to urgently correct this and copy the template . We do not conduct management accounting without this tool and we do not advise you to do so. Happy scaling !