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Making the Jump from Small to Large

Growing your business requires attention to production processes, accounting systems, and management

One of the most enjoyable aspects of business is the process of growing a company from a small to a mid-sized shop and, eventually, to a large business.

Managing long-term growth is always exciting, but it can also prove very challenging. To help you overcome some of these hurdles, I want to analyze three areas of a growing business that require your constant attention: production processes, accounting systems, and management teams.

Formalizing your production processes
As a smaller company, you may be running one shift, using one or two shop supervisors or production managers, and managing a handful of production personnel. It may be realistic to grow this structure to even a $3- or $4-million company by adding equipment and a few more personnel as you incrementally grow. At this level, defined production processes may not be necessary because everyone on the floor can see and manage each job.

But as sales grow, your workflow continues to increase, eventually creating strains on production. There will come a point in time when you realize the need for defined production processes. Usually, the signs are quite painful: missed deadlines, quality-control issues, excess overtime, and so on. All of these will result in higher material and labor costs and, of course, lower net income.

To manage these problems, you must formalize the production processes and hold your personnel accountable to them. One idea to consider is developing company standard operating procedures (SOPs).

Over the years, as our company grew-particularly as we added additional shifts to our production day-we noticed an increasing demand for SOPs in the workplace. The advantage of using this type of approach is that you formalize a particular procedure, have everyone agree on it, document it, and train everyone on it. Then, as new technicians come aboard, they are trained by someone using the SOP, thus providing a consistent approach to the way this particular procedure should be done, no matter who is performing the task and regardless the shift during which the work is produced.

As your business continues to grow, this approach with your production (as well as other) systems will become increasingly valuable. It's also important to note that even though my own company has been working on these processes for years, we continue to adopt, implement, and tweak our SOPs on a regular basis.

Dealing in hard facts and numbers
The second area of focus when trying to tackle growth is your accounting systems. First and foremost is managing cash: Rapid business growth consumes cash very quickly and can create significant difficulties in managing your business. Cash management should be, at minimum, a weekly agenda item for upper management and probably a daily discussion at the accounting level.

Our own controller has a cash-management meeting with her accounting personnel each morning. The meeting may only take 5 or 10 minutes, but it's crucial in managing the daily demands of cash. Our senior-management team then has the opportunity to review the cash-management reports every week.

As your company grows, you also must become better at utilizing your financial statements in a timely manner. Management and overall business decisions will need to be made based on the hard facts and numbers generated from your financial statements-you can no longer afford to run the business based on your "gut feel.' While this type of 'from-the-gut' strategy may have worked in the past, the more you grow, the more you will need to rely upon accurate financial data to make critical decisions in developing your business.

Another point: If your monthly books are closed several weeks after the month ends, you will always be too far behind the data, and the decisions you make will not consider the relevant financial facts of the business.

Building a management team
The final critical area to consider is your management team. One of the most challenging times in the life of your business will be when you add the next level of managers. You can no longer keep track of every job, manage every employee issue, or solve every production problem yourself. Many of you, of course, have already passed that point.

Building a strong management team is really the key to successful business growth. Before anything else, you must make the mental jump to a management-team philosophy. Once you realize that you can no longer handle everything yourself, you can begin to assemble the right team.

As you look for the next manager(s), interview thoroughly and methodically. These are the people that will be making critical decisions on your behalf. Be careful that you don't fall into the temptation of simply elevating current employees to newly created positions: While that may work in some instances, bringing in fresh blood with management experience in other industries and with other companies will provide you with invaluable knowledge and insight into your business.

If your philosophy is to always either promote personnel within or hire inexperienced managers with the idea that you will train them "your way," you are doing yourself a huge disservice. New and innovative perspectives are exactly what your business needs to continue to grow and be successful. Too, be prepared to accept the fact that you will indeed make some misjudgments along the way in hiring the right management team. If this happens, and you realize you have made a mistake in hiring the wrong person, make the change quickly and refocus on finding the right person for that management job.

As you assemble your management team, don't hesitate to utilize some outside resources to assist you in developing the group. For example, over the past few years, our company has enrolled our management team in lean-manufacturing training, taken classes in Six Sigma training, and studied principles of ISO 9000. As a team, we have read countless articles and we're always reading a book simultaneously-which we discuss, chapter by chapter, in our weekly management meetings. We also send our managers to trade shows and enroll them in classes, then have them return and report the information they have learned to the entire group. We take advantage of the traveling training and seminar groups when they come to town, and we enroll our managers in classes that might be appropriate to their individual level of management experience. The point here: Don’t try to build your management team all by yourself; many good resources are out there that can assist you in building your best team.

The rewards of growth
As I said earlier, growing your business is very demanding. The process will, at times, make you long for the good old days when your company was a small shop with a few staffers, just doing your thing. But at the end of the day, I think you'll find that the satisfaction and excitement of being a part of a dynamic, growing business is second to none. By adopting some of the ideas I've presented here, your growth process will become a rewarding one.

Marty McGhie (marty@ferraricolor.com) is VP finance/operations of Ferrari Color, a digital-imaging center with Salt Lake City, San Francisco, and Sacramento locations.

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