3 rules for growing a business

As enterprises develop, more opportunities emerge, and it seems that the logical thing to do is to ‘grow the business’. Here are three key issues for growing a creative business:

1. Understand sales and profits

Usually people mean that sales increase and consequently the number of people employed grows too. But what about profit? It doesn’t automatically follow that more sales means more profit, because expenditure may be growing even faster.

Most businesses fail by simply running out of cash – this applies to creative enterprises too.

‘Turnover is vanity, profit is sanity’, as the saying goes, reminding us that whilst additional sales are alluring, what’s more important is profitability and financial viability.

The pursuit of ‘growth’ should not just focus on ‘sales at any cost’, but also on overall financial performance.

The issue of sales, costs and profitability is intimately connected to the management of cash. Expanding businesses face the real danger of overtrading, in other words, ‘biting off more than they can chew’ in financial terms.

It’s tempting to increase fixed costs (premises, employees) even when income is fluctuating and unpredictable, which creates difficulties in managing cash flow.

Bigger businesses generally need more working capital and problems with cashflow will grow with the business, making insolvency more likely unless additional cash is injected into the enterprise.

Most businesses fail by simply running out of cash – and this applies to creative enterprises too. So business expansion isn’t just a matter of working harder to produce more to satisfy more customers – it needs careful cash planning as well.

2. Manage your growth

Attracting investors

Business growth usually requires additional finance, which can be provided by loans or equity investments (or both). Attracting investors means offering a share of the business (if it is a company limited by shares) and that results in some loss of ownership and control of the enterprise.

Investors may bring more to the table, such as expertise, experience and contacts, as well as their cash. But their involvement and the associated adjustment to the balance of power at board level can be uncomfortable. If autonomy is a key element to your definition of success, this is a crucial matter.

Hiring staff

Taking on employees involves financial and legal responsibilities and the creative entrepreneur finds that they are now expected to be a manager and leader as well as a designer, musician, performer, photographer or artist.

Business Link and local creative enterprise support agencies can help with employment matters and HM Revenue and Customs will provide information for employers.

Taking your business overseas

International growth, either by simply selling overseas or even setting up in business abroad, is exciting and glamorous, bringing with it opportunities for joint ventures and creative collaborations.

But it also brings its own complications: fluctuating currencies, customs regulations, language barriers and different ‘business etiquette’ in foreign cultures all help to make international business both complex and fascinating.

Help and advice is available through a range of services offered by UK Trade and Investment (UKTI) for creative enterprises developing their businesses beyond the UK.

Before launching into business expansion, creative entrepreneurs need to be guided by their own personal definition of success. This is often a mixture of creative freedom, financial reward, peer respect, autonomy, and other elements.

3. Balance creativity and business

Business expansion can sometimes lead to the ‘wrong kind of success’. In other words an apparent success which does not fulfil the personal objectives of the owner.

As you grow your creative enterprise, grow the right things, for the right reasons.

One of my clients was very successful in financial terms, but felt trapped by the business he had created around him. It involved spending most of his time managing employees, clients and cashflow at the expense of his own creative work.

Management guru Charles Handy asks how should a symphony orchestra ‘grow’? By adding more and more musicians? (in an attempt to mimic an industrial model of business)

Or should growth be measured in other ways instead – by reaching higher standards of performance, attracting world-class musicians, embracing more challenging work, and connecting with new audiences?

In conclusion, as you grow your creative enterprise, grow the right things, for the right reasons, in order to achieve your own definition of success as a unique creative entrepreneur.