What kind of business may be scaled? 5 principal criteria
New competencies, together with a solid foundation, create conditions for favorable gradual business development. Together, these qualities constitute high-quality professional growth for legal entities. This phenomenon is called scaling your business. Without progress and permanent growth, there is no possibility of improvement, achievement of targets and success.
Scaling directly represents an increase in the sphere of its influence. Escalation into new regions and industries. Entrepreneurs, as a general rule, strive to scale their activities.
It seems possible to expand any business with varying efficiency over the time. A combination of many factors is necessary in order develop a business over a long period in effective manner. The following factors are most frequently used:
1. The business should be profitable
For six months up to a year, an economic entity has to generate profit. The continuous increase in profits is an undeniable advantage. In addition to the profit itself, it is necessary to increase the profitability of net profit. An increase in profit without observing the corresponding increase in profitability shall be biased material.
Net profit margin is identified by net profit divided by revenue and percentage.
It is also possible to increase a business that does not meet this criterion. For example, at the expense of credit funds. However, there is no guarantee how long such a business will be scaled and whether it will be effective or not.
2. The organization needs to rely on management accounting
Management accounting allows you to present an unbiased picture of the profitability of an economic entity. This will provide answers to the emerged questions needed to work through before scaling:
- Which product generates revenue?
- Which areas of the economy may be stopped?
- Will your own resources be sufficient?
- What resources will be needed for growth?
The immediate aiders are the basic reporting together with the financial model.
3. The business must be manageable
Scaling the chaos in management stands for one of the favorite targets of most entrepreneurs.
It is necessary to take care of building a vertical power and subordination structure before direct scaling. A responsible private individual should be appointed for each business indicator. Each employee should understand why they receive funds and why they could receive less of them.
The above-mentioned point may be one of the most complicated. However, it must be completed in order to effectively scale the chaos.
4. The need for new specialists
Different specialists have varied skills, which are sometimes not comparable to others. The cost of an error by a specialist who does not have the competence that corresponds to the new scale of the business may be directly proportional to the magnitude of the scaling. The only thing in business is that money pays for everything.
It is recommended to decide whether you will invest in the development of current specialists or intend to update the team in advance.
5. Effective business scaling should be led by a new owner
Business development and growth are always limited by the competencies of the owner. Usually, it is normal for an owner to not be a sales or finance professional. However, not developing these competencies will be an issue. Not acknowledging the fact that you are not coping in any direction may be a critical mistake.
Business scaling is possible with the aid of owner scaling. Consultations, seminars, trainings and courses – all this accompanies personal growth and scaling.
In cases where the owner of an economic entity has not grown enough to realize the significance of all the abovementioned points, his activities may be doomed to the impossibility of scaling either by himself or by any other individual.