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 Growing your business without risking  ... Too much

Should I grow my business?

Nearly every business owner addresses this question at some point, along with the possible risks and rewards that come with the answer. In the building industry, if you grow in time to catch an expanding market, the rewards can be great. On the other hand, if the timing is wrong or the business is not ready, growth could lead to the demise of the business.

It is possible to reduce the risk associated with growing your business. Whether you're preparing to enter into a growth stage or are in the middle of one today, there are ways to reduce risk to an acceptable level.

Plan, plan and plan

"Despite all of the information available on planning, it is amazing how many businesses do not prepare a plan," said Donald Urbaniec, author of Grow or Die. "Businesses need to ask the basic questions, such as how much they want growth, in what areas and why. Then they need to put those thoughts to paper."
A builder's growth plan should include what accounts or projects will be targeted, what needs to be done to obtain them and how the organization must change in order to handle the new customers, Urbaniec said. In addition, because contracts are often assigned as a result of whom you know rather than by what you know, it is important to decide how the company will build the necessary relationships.

Make cash a priority

"Watch your cash flow like a hawk," said John Reddish, CMC, founder of Advent Management International, Ltd. "Cash flow is unimportant when you have it, but nothing else matters when you don't."

When a company is growing, cash can be easily exhausted before profits from new sales can support the company. Realistically projecting the amounts of cash that will be needed is key to success. Once projections are prepared for the anticipated conditions, also prepare a cash flow forecast based on the worst-case scenario.

Companies in the construction industry should be friendly with more than one bank, Reddish recommends. With changes in the banking industry and lending preferences, this provides access to funds when they are needed, even if lending practices at your bank should change.

Regulate risk from others

"In the construction industry, it is common for the customer to want to transfer the risk to the contractor," Urbaniec said. "Whenever possible, the goal for the contractor is to contractually have the customer maintain all or a majority of the risk."
Urbaniec explained that a proposal should be reviewed to determine what might increase costs, slow down the project or cause problems. Where possible, these risks should be retained by the customer or shared between the parties. In cases where a customer threatens to find another contractor if you are unwilling to accept the risk, it is usually wise to pass on the project, especially if you feel the risk is too high.

While risk cannot be avoided as you grow, risk can be greatly reduced by taking the time to identify risk areas and finding ways to reduce their possible effect on your business.

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