When constructing a new building, the architect considers the size and use of the facility in order to calculate the foundation, plumbing and electrical needs. If you are constructing a building that you hope to expand one day, the architect will recommend putting in larger electrical and plumbing services as well as having land available for expansion.
A business has similar infrastructure requirements that are needed to accommodate its growth. These requirements include team talent, working capital, equipment and accounting systems. Why are these important? Just as electrical service is limited by its capacity, inadequate business infrastructure can limit the growth of a business.
As a business grows, the complexity of the business issues grow with it. An entrepreneur will eventually become overwhelmed if he or she is the only decision maker or performs too many of the daily tasks.
Capital needs such as new equipment and expanded facilities can be significant in a growing business. Traditional financing requires a 20% down payment, and while 100% financing can be found, it is typically more expensive. Working capital, the amount of cash needed to support accounts receivable and inventory, can consume all of the cash in a growing business.
For accounting systems, most startups use an entry level accounting system. These systems support basic bookkeeping and some reporting. However, these systems typically have few internal controls to prevent errors or theft and lack the ability to adequately support more complex processes such as manufacturing, inventory or construction contracting.
So, how does one build a good infrastructure? Begin by planning. Start thinking months and years ahead. Know where you want to go and communicate that to your team and potential team members. Secondly, build a great team that buys into your vision and has a diverse skillset. Third, retain as much cash and capital in the business as possible, especially in the early years. The businesses that survived the downturn in 2009 and 2010 had margin in their capital position enabling them to thrive while others failed. Finally, don’t wait until the business is bogged down by inadequate accounting systems. Upgrade the systems in order to provide the data necessary to make better management of the business and its assets.
Don’t let inadequate or crumbling infrastructure limit your business.
I am a contributing author to the Evansville Business Journal. This article was recently published.