The Hidden Costs of Business Growth

The Hidden Costs of Business Growth

Britain is full of entrepreneurial talent. In fact, according to the Federation of Small Businesses (FSB), at the start of 2013, SMEs accounted for 99.9 per cent of all private sector businesses in the UK, employing 14.4 million people and had a combined turnover of £1,600 billion.

The age old tag of UK being a nation of shopkeepers simply doesn’t apply, and it is the diversity, creativity, resourcefulness, energy, enthusiasm, drive and determination that has made the SME sector so valuable to the UK economy.

Most people when they start a business do so with aspirations that the business will grow and be a success. And with that success there are likely to be things that the business will need – things like getting premises, employing people and increasing marketing. These are the exciting thoughts that often fill the minds of small business owners and very often these dreams really do become a reality – which is fantastic!

But before you start expanding on any level and at any stage of your business journey, it’s worth taking a step back and considering the real cost of business growth – because at a time when you are working hard and are so busy that you need to grow – the last thing you will want are nasty, expensive and unexpected surprises waiting in store for you.

There are a multitude of ways in which the costs increase as businesses grow – costs associated with hiring people, moving into new premises or moving onto larger premises, buying bigger or more kit to meet increased demand, and increased infrastructure.  Of course if you have planned for business growth from day one then you will already have set the pricing at the correct level, have growth costs built into your plan and know what is likely to happen. But for the vast majority of businesses that have grown, they have done so (particularly in the early days) as and when the need has arisen and often not in an advanced and planned manner.

So if you are looking to grow your business then here are a few things to consider and factor into your planning, budgeting and thinking.

Hiring – staff will cost you from day one (and if you are having to find staff there may be job advert costs or employment agency costs that you will incur prior to them starting) but you won’t necessarily get sales or added value from them from day one, so make sure the business is financially able to absorb that lag. Sales will ultimately have to outstrip the cost of expansion if this is going to be a profitable move.

Remember initially you will need to train new members of staff and this will divert you away from what you are doing which could impact on the sales figures further.

Employers National Insurance, HR – contracts for staff, Health and Safety Issues, Running Payroll, potential for sickness, need to pay for holiday or maternity leave and cover will also have financial impacts on the business.

Capital Costs - If you are buying IT or equipment – is it likely to be out of date within 12 months? If so – is the alternative to hire it? This will give you the flexibility to regularly update equipment without having to take a massive loss on purchased kit or re-purchasing. If you are buying new computers – will they need new software and licences, will they need setting up or if you need a server or networking, how much will this cost and will you need to pay a third party consultant or company to come in and do this for you?

New Premises – moving to larger or newer business premises. How much bigger are they, are they ready to move into or will you need building or remodelling work or need new infrastructure. Will they need decorating, new signage, what is the energy rating of the new premises and how much are the electricity and heating bills likely to increase by?

Keeping Momentum – If your business is growing so will your overheads and as those costs increase it will be essential that the growth you have enjoyed to get you there is maintained – and so your business profile will need to continue to be in front of your customers and you will need to generate ongoing new business sales and/or repeat orders from existing customers. As a result, it’s likely your marketing costs will increase

New premises will mean new letter heads, new business cards, updated marketing materials – brochures, website, advertising and PR to promote the new location (if you are reliant on customers coming through the door).

Covering Risk – with more kit, more people, bigger premises, you are likely to need to review your business insurance and even consider wider insurances such as Directors and Officers and increased Employers Liability Insurance. Will the insurance company require improved security if you have expensive equipment kept on the premises?

Understand the impact that self-funding can have – if you are going to pay for any expansion plans out of your own pocket – beware the impact that this can have on your own business profit and the money you may need and are used to having. If you are working from home and then want to expand to have offices and a member of staff, the impact that this will have – going from virtually no overheads to some of the biggest you can in the shape of rent, running costs and staff costs, will really hit your profit and potentially your personal monthly income until you start generating the additional income to pay for the draw the will make on the business.

Conclusion – Growing a business can be a really exciting time but it will have cost implications and it’s vital that you understand what they will be and don’t get caught out with any unexpected bills.

Call to action – If you are looking to grow your business and would like to sit down and map out the true costs of business growth, against what your business numbers are telling you then call us now on 01872 560326 or email us on