Like most small business owners just starting out, I thought the key to my success was growing my business — taking on larger jobs, hiring employees, adding more square footage and becoming the king of the world. But I discovered that there are pitfalls to look out for if you grow too fast or take on too much before you’re ready.
Here are some to look out for:
Let’s say your one-man shop lands a big job that’s too good to pass. You hire one or two craftspeople, the job is humming along, and another big job presents itself. But this job requires a new machine and more storage space, which you rent across town. Suddenly, you have to hire two more people just to manage the six plates that are spinning in the air.
When the first large job is completed, panic sets in – where’s the next one coming from? You start working the phones, looking for the next project, and take on a few smaller jobs to keep everything going. You’re now spending most of your time in the office ordering supplies, paying bills, and figuring payroll. You’re also on the road doing estimates, making connections, and meeting with potential clients. You’re growing your business, but is this what you really want?
When my business was at its largest, I had 18 on staff. I outsourced my payroll, hired a floor manager and bookkeeper, and still spent most of my time feeding the machine. I wanted to be a fine woodworker but had become a typist.
Sometimes I took on jobs that were intentionally under bid just to keep the machine running and retain my best employees. I was working harder with only a slight increase financially.
My career took a turn in the late 1990s when I became Wendell Castle’s studio director, while downsizing my business and shop. I eventually left Wendell to work for an architect and started over. But this time I had a new perspective on how to take on big jobs and not fall prey to the siren call of expanding.
Before hiring your first employee, consider going with skilled sub-contractors on the first few big projects. If the work continues to flow in, you’ll know who to hire full time. Pay these subs well and they will return the favor. Avoid using unskilled workers. While they might be cheap, they are often a headache.
Go up, not out
My shop was in a large industrial building that had lots of tenants and flexible space. My landlord usually had a spare room across or down the hall if I needed it, and I was able to expand and contract my space requirements easily. Also, consider renting space that has high ceilings. Real estate is typically rented by the square foot — not the cubic foot — and if you’ve got high ceilings, you can install pallet racking and buy, borrow or rent a forklift for long-term storage. I added 30 percent to my storage space for the same price just by going up instead of out. I even put my office above my spray booth.
Knowing whether you should invest in a new tool is a study in variables. It is best to outsource until you know your new machine will pay for itself.
Insurance costs can add up and slip under the radar. So, it is very important to keep up with your agent on how big you are and what is insured. I had a big fire that burned down one of our four-story facilities and lost $70,000 worth of uninsured finished product. It took me two years to recover.
Cash flow can become a major issue during a growth period. Big jobs require large upfront cash outlays, and often, these clients are general contractors or institutions that don’t provide deposits. I’ve had to rob Peter to pay Paul a few times in my career, and that scenario can easily become a slippery slope. Cultivate a good working relationship with a local bank manager because a line of credit can be quite useful. Don’t finance your business on a credit card with high interest rates.
Make sure you pay suppliers on time and in full for that time when you might have a cash flow problem. Some can extend credit for those large material purchases, and they’ll know you’re good for it. Paying early will often get you a two percent discount, which adds up.
If you’re equipment works efficiently, then you’re making money. So, skipping maintenance can become a huge headache in the long term. Keep your eye out for a retired maintenance person to come in once a week for a few hours.
Automation can be your friend, such as accounting software, digital fabrication machinery, or programmed controls for the shop’s lights. Anything that saves time without a major investment is a good idea.
A growth step should be as strategic as possible. Finding the right size and balance was the trick for me. So, before you hire that next person, or buy that new tool, put a growth plan in place and you’ll yield more profit. Or stay small and happy.
This article originally appeared in the June 2019 issue.