Should you scale up? Five financial warnings that you’re not ready

jobs, revenue, scale up

Every businessperson is excited about their business and with that excitement comes a desire for growth. However, there are some clear warning signs that you may not, yet, be ready to scale your business.

Before you can scale, you need to make sure that the basics for success are in place, otherwise, you may find that scaling leads to failing and you don’t want that.

Big warning signs that you shouldn’t be scaling include:

1. You haven’t made sufficient sales

The number one sign that a business is in a good position is that it’s making profitable sales. But many new entrepreneurs think that they can start to scale without even making a single sale, investing big in an unproven concept

This is likely to lead to rapid failure. If you have a great product or service, it should be easy to sell it – and getting a few sales on the board helps to convince investors, the bank, etc. that you’re ready to do more business.

It’s normal to struggle to get to your first sales, of course, but you can’t grow a business without sales.

2. The bottom line is dwindling

Scaling is best done when a business is thriving. Do you have an established business where profits are slowing down, people aren’t being trained properly and you have a much bigger operations team than you do a sales force? Then you need to stop and take stock.

Why would you want to scale a business that’s spiraling out of control? That will just bring more problems – it won’t solve problems that you already have.

3. Returns are growing

Returns are a natural part of running a business and, by and large, the occasional return is nothing to worry about. But, if you have a large volume of returns coming back in, not only will this get expensive, but it means you have a big problem.

Your business is focusing too much on quantity and not enough on quality. Scaling when returns are growing is a bad idea, it may result in more sales, but it will result in even more returns.

In the end, you will be paying your customers as you grow, rather than the other way around.

4. Staff retention/recruitment costs are spiralling out of control

They say that rats are the first off sinking ships, but in the case of a business with problems, it’s often those people at the coal face who leave first.

If you suddenly find your staff retention and recruitment costs spiking, it’s a clear warning that you have an issue (it might be management, it might be a supplier, it might be a process) and you need to find it and fix it before you scale.

Scaling when people are leaving will just exacerbate any problems you have.

5. Clients are leaving

Depending on your business model this may come in the form of reduced levels of client retention, or it may come in a reduction in order book value. Of course, some client churn is normal but if it’s becoming a noticeable issue – you need to fix it.

It should come as no surprise that when clients leave in droves, something must be done before you try to scale. Otherwise, you’re just going to accelerate the rate of churn.

Final thoughts

Don’t be despondent if you encounter a red flag in your quest to scale your business. It’s an opportunity, not a disaster. Oftentimes, fixing a problem early can save you thousands of dollars when it comes to sustainable growth.

When you find a problem and fix it, not only will you be better poised to scale, but you will become a more effective leader, too.