Growing a Business Without Busting the Bank

Few things can satisfy a business owner like finding a niche or product so special that he or she can barely keep up with demand. On the other hand, few things can unnerve an entrepreneur like realizing that the business no longer has the personnel, the inventory or even the know-how to keep up with demand. It's difficult enough to build that business, but when the growth comes and you're not ready for it, it can undermine your success, even put you out of business.

Beth Hagan has seen it happen. Hagan is a business consultant who works with Florida Gulf Coast University's Small Business Development Center and who teaches FastTrac, a business advisory course through the University of Florida.

Hagan has helped plenty of business owners manage growth, but she knows of a few, too, who sought help too late. In one case, a man had started a promising manufacturing business. The problem was that he had no interest in or understanding of accounting. He waited until the last minute, then applied for a loan for working capital, but it was declined. When a business consultant looked at the balance sheet and statement, which the owner had been shoving aside for months, the reason became apparent: The equipment, about $100,000 worth, had been expensed, so it appeared as a loss. "This guy says 'What do you mean? I don't care about accounting; I just want to manufacture my product,'" Hagan says. "There was no relation to reality."

Cash Flow Challenged

To grow, a company might need more employees, more inventory or more equipment to serve more clients, but that takes money. "The first issue and most important is to provide the working capital to fuel the growth. There are few business that don't experience a cash flow problem," Hagan says.

Cash flow is precisely the problem that Tom Strachan and Steven Brannen faced shortly after they launched Abby Services Incorporated, which provides in-home health services. The two started in February 1998 and issued the company's first billing in March -- $120, Strachan recalls. "Cash flow was quickly getting wiped out . We were paying out a lot more in cash flow than we were taking in."

The reason was that insurance companies often spread payments out to 90 days, leaving Abby heavy on payouts and short on income. "Cash flow became a big, big problem," Strachan says. "We took on a silent partner for the cash flow, which helped us get through that period."

In a year and a half, the company has grown from two to about 60 employees with billing of more than 800 hours a week. Strachan conservatively estimates revenues this year at $750,000 this year.

At this point, the entrepreneurs are trying to decide how much to continue expanding. Strachan says the company is licensed to have up to five offices, and potential investors are waiting in the wings. "I'm thinking if we took on more partners or stockholders we would be able to duplicate what we've done here," he says.

What's making him hesitate, however, is "giving up a piece of my company. That's the only drawback." He'd rather wait until finances allow the expansion without having to turn to investors.

Trying to keep up with growth is a "juggling act," says Kathi Murray, president of Komputer Integration Service Specialist, Inc., more commonly known as KISS. Murray is trying to keep accounts receivable coming in while higher payroll and other expenses are going out. "I was always of the philosophy that 'Pay as you go and you'll never owe," she says. "But you can't always do that."

Formed in 1988, KISS offers a broad array of computer services from custom-building computers, to building servers, dealing with Y2K issues, providing software training and more. Now Murray is planning to add service as an Internet service provider. "It was just myself. I was a consultant. Now I have a staff of six," she says. "My only saving grace is my line of credit." That has helped her finance the increased payroll and larger facilities she has needed to maintain a high level of service.

"Some people might have money saved up or borrow from family and friends. I like to keep personal separate from business," she says. "I got a line of credit several years ago, when I didn't need it." Now she has that credit to turn to.

Knowing Your Needs

Before business owners start spending time and money expanding their resources, they should take inventory of what they have and determine where they need, says Suzanne Specht, a certified business analyst with Florida Gulf Coast University's Small Business Development Center. "My motto right now is: taking stock of inventory of where you are and where you want to be and having an action plan of how to get there," she says. "People are so busy, they don't take stock and they don't plan."

The key is to focus on defining the real problem, figure out where the company stands in terms of technology, human and financial resources, then decide how to go about improving that resource. It might be a question of using existing resources more efficiently, but if it becomes evident that certain areas need expansion, business owners might find ways to get those resources and minimize the expense.

Looking for "cutting edge" options can keep an entrepreneur ahead of the curve, Specht says. The Internet, for example, has a wealth of resources. Through various web sites, you can find a virtual secretary, techniques to pull your personal life together or help in comparing loan options, creating invoices and accounting databases. You can even hire a chief financial officer and get help handling payroll. "The web is helping small businesses act bigger," she says.

Before you start making changes, make sure they are needed. "To expand a business and hire more people may not be the best thing," says Cheryl Hanson, an organizational development consultant who also works with Edison Community College. "You've got to decide where you want to be."

"We know people are busy," Specht says, "but if you want to go into the next millennium being this busy, take time out to get a handle on what your business is all about."

Business owners also have to pay particular attention to their income statement and balance sheets, says Rick Kraska, chairman of Employee Professionals. "They should not over-extend to grow too fast."

Having a business plan and sticking to it are crucial to growth, Hanson says. "Focus on what are the core products. You don't want to let go of what you're doing really well." A printing company might do well offering business cards and stationery, for example, but its customers might not be as interested if it starts focusing on monogrammed T-shirts.

Even if you have tremendous growth potential, "you're only as good as your last deal," Specht says. "You need to really be prepared for those times when business might dry up" and a business plan can help prepare for that.

At Employee Professionals, "our growth has been entirely cash financed in after-tax flow," Kraska says. "We owe no money."

Employee Professionals serves other companies by handling their payroll and personnel business. Kraska bought the professional employer organization, or PEO, in 1995, with wife, Kate Kraska, the company treasurer, and son, John Rousseau, company president. In less than four years, the company has grown more than 700 percent, to about $55 million in payroll.

Part of Employee Professional's success, Kraska says, is from "having a solid business plan that a number of people sign off from," including a tax lawyer, an investment advisor, a banker, and an accountant. "It's wise to get a number of different heads into your business plan to say you're on the right track. Those companies that don't start with a good business plan, 75 percent of them will fail."

Ask for Expertise

It's a good idea to keep those people involved with the business beyond the plan. Most entrepreneurs don't have all the skills the company needs, and they could end up like the manufacturer who was good at making his product, but not at accounting.

Several sources of help are available such as consultants, small business centers, volunteer organizations such as SCORE and the Internet. In addition, industry associations can be invaluable sources for up-to-date market research and other data to help measure the pulse of an industry and customer base.

But it's hard to replace the kind of expertise and guidance that can come from an advisory board. "Good mentors are always a good idea," Specht says. "They can give good, objective ideas" not only about the business's attributes, but also about its failings.

And it won't cost much more than dinner a few times a year, Hagan says. Building an advisory team not only gives an entrepreneur the sense that he's not alone, it can bring to a business expertise on a variety of issues: An attorney can help work out legal issues about the human resources manual, a tax accountant can point up potential Internal Revenue Service questions, someone who has been in the industry can share experiences about the marketplace, an accountant can notice when the business wanders outside the national average for liquidity.