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Is Bigger Better?

Considerations for a Growing Small Business

Every successful business, whether it is a neighborhood restaurant that has been around for twenty years or a corporation like Ford, has to start small. But with a solid product to offer, good business management, and a lot of time and dedication, a business owner can decide where they want their company to go. Many business owners, like service contractors, can see the opportunities that come with business expansion, but the first steps in that direction can often be confusing. If your contracting business has made it through the start-up phase, you already know that you can survive, and even thrive, against difficult odds to achieve great benefits such as financial stability and professional independence. And maybe you can see even further, to where your business continues to grow and innovate. If this is your own case, you can probably see some of the big challenges that are up ahead. How much time, money, resources, and extra effort can you afford for the big leap toward expansion? Here are some basic things to consider:

Is Getting Big Really What You Want?
Before the big push toward expanding your contracting business, think about what you want to get out it. Are you going after greater independence, income, market share, or the ability to manage, rather than doing, the field work? If you are already doing well enough to live comfortably, saving a little money, and provide for your family, ask yourself if you are willing to take the financial risk and the additional time to achieve your small business growth. If you already have a loyal customer base which gives your business substantial referrals based solely on your past work, you should consider what it will take to expand while still providing the service that has established your company in the first place.

Get advice from people who can relate to your situation. If you are a roofing contractor considering taking on three more employees and the new truck that will go with it, talk to another thoughtful roofing contractor that has already completed some of the growth you are striving for. The advice of more experienced contracting professionals can give you an idea of what to go after, like workers with a minimum number of years of service that know the ground rules of the business. Potential pitfalls, like going into too much debt to buy more equipment, can also be pointed out by more experienced members of your profession. Consider that growth creates the real possibility of harming the business that you already have. You may work in a market that can sustain your current operation size, but would not gain any greater customer response by the addition of 30 percent more service capacity. Is the market at a good point to receive your additional business capacity? Factors like a sluggish economy, seasonal factors (such as cold winter climate effects on landscaping business), or heavy competition are some of things that can become critical issues when building your business. Once again, this is where experienced professionals can help guide you in the right direction.

What About the Help?
With a greater workload and customer base, more employees quickly become necessary. The opportunities and headaches grow along with the size of your payroll. A big consideration is whether or not you are a manager. While many contractors excel in fields like masonry or HVAC, installing a commercial AC unit is very different from working in human resources. Do you have good interpersonal skills? Have you successfully managed in the past, perhaps in another field such as sales or the service industry? If you don't think that you're able or willing to perform the management a staff requires, you may have to hire a manager to take on this crucial role. Is the expansion of your business still worth it given this sort of consideration?

When it comes to hiring new help, friends and family often come first to mind. Especially if your business is home-based, the idea of a spouse, son, or daughter can seem like a convenient and trustworthy source of labor. And while this can be the case, it is important to weigh both the good and the bad of this option. Family can be more trustworthy and reliable than complete strangers. You know each other's personalities and work habits, so unpleasant surprises are less likely to occur. Family loyalty and close mutual benefits are also great potential assets. However, consider that a typical close family relationship is very different from the relationship between a worker and a boss. Will you be able to treat a family member in a truly professional manner, especially if you have other employees who are not related to you? What if family decides to ignore three workdays in a row with the expectation that you will give them special treatment? Also consider how much contact you will have with the family member outside of the work setting. Will this new aspect of work life improve, hurt, or have no effect on family life?

Will your new employees be part-time or full-time? If, for example, your construction company is growing fast and needs some office capacity to keep pace, a secretary may become necessary. Since most potential customers expect that a business can be contacted throughout a normal 9-5 work week, a secretary might have to be full-time. On the other hand, if you need transport of materials to worksites several times a week, a driver might be hired for 20 hours a week.

There is less commitment when you hire outside contractors instead of employees for work. The difference between the two is primarily regarding benefits like insurance, taxes and oversight. Obviously, a contractor who works for himself is not nearly as accountable to you and your business interests as an actual employee. The lesser expense of not providing insurance, retirement benefits, or workspace for the contractor should be weighed against the potential of less loyalty and managerial power.

Look Out, Overhead!
The operating expenses of a business, such as office space, utilities, and taxes, outside of labor and materials, are known as overhead. Small businesses have a good number of options when it comes to dealing with what is often a very expensive hurdle in the business expansion process. With office space, contractors should consider what their needs are in terms of location and capacity. The perception of your business can depend partially on office space. While working out of the house may be less expensive and more familiar, an office will raise the degree of professionalism that most people will perceive towards your business. The cost of office space should be considered in this light. Since many contractors purchase supplies in bulk, an office space next to or within a warehouse serves administrative, storage, and even workshop needs. Additionally, the ease of a truck dock makes transport of material even easier.

If your business would fit better into more conventional office space, perhaps in interior decoration or home design, a business center or business incubation center is another possibility that can enhance the perception and efficiency of your business while keeping costs down. A business center is a growing trend in office space solutions that has tenants rent space in the center. The center gives tenants use of a common receptionist, office equipment, perhaps an impressive address and other amenities such as conference room. A professional office atmosphere is obtained at much less expense than a conventional office renting scheme might offer. Office space can also be rented along with another company. If another contractor business has similar needs in terms of location and facilities, this can be a great way to reduce cost.

For small businesses, the best solution is almost always to lease equipment. Cash flow will be improved and write-offs can almost eliminate the cost of the leases from taxes. Additionally, the rapid advance of technology makes leasing a very smart option when you do not want to get caught with computers or a copier that become obsolete before they are even paid off.

Raising Capital
Every expanding business needs money for its operations, but the nature of the small business is such that this capital can be difficult to obtain. Banks are the obvious choice, but because of the instability of many small business ventures, banks will be less likely to give out loans. While larger businesses such as corporations have an advantage when working with banks, it is still possible for the small business to get venture capital. If you are able to establish a relationship with a banker, keeping him informed on the financial status and outlook of your contracting business, as well as your personal track record in business, the likelihood of getting a loan can increase. It is necessary to prove that you have a viable business. This means documentation of cash flow as well as possibly offering collateral. Venture capitalists make their business by financing up and coming businesses. Once again, it will be necessary to show that you have solid customer references and a solid business plan.

Is Business Expansion for You?
Your contracting business is your livelihood. Its stability and its potential are crucial in order to determine whether substantial growth is the next best step.

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