How to grow a small business into a medium business

Making the leap from a small to medium-sized business can be tricky for any entrepreneur. You’ll have spent months, or even years, rising to the challenges of start-up life. So, leading an expanding business, with growing profits and staff levels, might not come naturally.

But growing pains don’t have to be inevitable. Read on to explore ideas on how you might be able to grow your business sustainably. From strategic planning to marketing, our guide looks at the main factors to remember.

What is a medium-sized business?

The journey from a small to medium business revolves around your turnover, balance sheet and headcount.

According to the Government’s Foreign, Commonwealth & Development Office, a medium-sized (or mid-size) business has a:

• headcount lower than 250
• turnover of less than €50 million;
• or a balance sheet total below €43 million.

In contrast, small and micro businesses usually have headcounts lower than 50 and 10 respectively.

How to grow a business

There’s plenty to think about as you expand a business from an emerging start-up to a mid-sized powerhouse. Here are some common steps that could help you to grow a business day by day…

Assess your current situation

As new opportunities emerge, you may feel pressure to grow your business. And it might be tempting to expand and invest as quickly as possible. The problem? Doing so could dent your balance sheet, harm your reputation, and even jeopardise your long-term viability.

Here are some questions to ask yourself first:

• How is your business currently performing? Do you have the capacity and resources to pursue larger contracts or introduce new products? Or is there a danger of you becoming overstretched and struggling to meet commitments?
• Are your finances stable? For example, could you afford to take on extra staff or buy new equipment? How would existing lenders and investors react?
• What are your strengths, weaknesses, opportunities and threats? A SWOT analysis can help to gauge your competitive position. Weigh up the positives, like your brand and customer base, against the potential risks. These may include new competitors or rising costs, for instance.
• Who are your main rivals? Entrepreneurs will struggle to convert small firms into medium-sized businesses without identifying market trends and competitors first. How will your company stand out from the crowd?
• Are your growth plans realistic? Think about whether your existing key performance indicators (KPIs) and growth projections are on track. If not, it may be a challenge to meet more ambitious targets.

Strategic planning

The next stage of growing your business is all about careful planning. Consider the opportunities and obstacles of scaling up. Mapping different routes – and best and worst-case scenarios – might ease the pressure further down the line.

Here are some tips that could get you started:

• Set clear and achievable goals. Learning how to grow a small business requires a healthy dose of reality. Set financial targets too high and you could worry your employees and disappoint your investors.
• Create a detailed business plan. This document helps you set out your vision to lenders, staff and other important stakeholders. Outline how you plan to grow into a mid-sized firm. Detail the main milestones you want to reach in the coming years. You could even revisit your original business plan and adapt this to your new circumstances.
• Identify target markets and customers. Detailed customer profiles could help you tailor products and services to the right audience. Think about the prices they’d be willing to pay – and whether there is a genuine demand.
• Consider the ease of scaling up. Aiming to turn a word-of-mouth success into a mass-market product? You’ll need the staffing, manufacturing and marketing firepower to match your new ambitions.

Financial management

Your finances will be one of the main areas of scrutiny as you evolve from a small to medium-sized business.

On the one hand, larger-scale contracts or national product launches could fuel higher revenues and profits. On the other, expanding a business may require you to take on more debt. Or to manage bigger overheads as your premises and workforce grow.

Here are some potential solutions to consider:

• Establish strong financial management systems. Specialist software can help you to manage your income, assets and expenses. It could offer much-needed clarity as you scale up.
• Keep a close eye on cash flow. This shows the balance of money entering and leaving your organisation at a certain moment. It’s a quick way of seeing whether your outgoings are greater than your income.
• Weigh up different funding options. Are any loans and grants available to help your business grow? External investments might also be worth researching.
• Understand the tax implications. Growing firms may have additional tax obligations compared to start-ups. For example, registering for VAT if your turnover exceeds £85,000.
• Assess current payment systems and tech. Are your existing point-of-sale (POS) tools capable of handling a future surge in demand? Cutting-edge POS systems, online payments, and phone payments may be worth a look as you grow.

Regulatory compliance

As part of your financial management, you’ll need to consider extra compliance duties. Mid-sized firms often have more red tape to navigate.

For example:

• Keep informed of legal and regulatory requirements. These could range from pension auto-enrolment to intellectual property rights.
• Stay compliant with tax rules and deadlines. From corporation tax payments to the PAYE system, an accounting professional could keep you on the right side of things.
• Boost your knowledge of employment law. The Health and Safety at Work Act safeguards employees against physical harm. While employment law spells out things like contracted hours, working conditions and annual leave entitlements.
• Consider legal support to protect yourself. Experts could assist with areas like trademarks and leadership structures.

Marketing and branding

An innovative, growing business needs a brand to match. Without effective messaging, it’s always tricky to turn small firms into flourishing medium-sized businesses.

Here are some areas you could work on:

• Strengthen your brand identity. Nail down exactly what the company stands for. What values, logos, colours and imagery should customers associate you with?
• Build a comprehensive marketing strategy. Think about the tools and campaigns you could launch in the short, medium and long term. These might include an effective website, email marketing, social channels, and even partnerships with influencers.
• Explore digital marketing channels. As a start-up, you may have struggled to find the time for certain digital channels. Search engine optimisation and pay-per-click marketing are among the potential options.
• Invest in customer relationship management. CRM systems help firms to keep track of their customer interactions, building relationships and brand loyalty over time. Choosing the right software could help you to organise records and store contact details in one handy place.

Operational efficiency

As you grow business operations, there’s a risk of losing focus. Or developing a sprawling, unwieldly company structure.

Here are a few ideas that could keep your operations smooth and efficient:

• Streamline internal processes. Standardising software, tools and systems across departments might avoid friction and minimise inconsistencies.
• Save time with targeted automation. For example, automated payroll may reduce the strain on your accounting team.
• Evaluate existing suppliers and premises. Are current contractors as efficient and cost-effective as they should be? What’s more, how could you optimise office or warehouse space to cope with future demand?
• Create contingencies for bumps in the road. No entrepreneur can predict every challenge that awaits them. But a detailed plan of action could at least give you a head-start.

Staffing

Recruitment is also a key operational decision. Especially if you’ve largely worked alone in the past.

Rather than rushing into things, here are some potential areas to look at:

• Consider the roles and numbers you’ll need. Scaling isn’t just about filling seats. Work out the specific jobs and skills that could genuinely drive your company forward.
• Find new starters the right way. Hiring for the first time? A specialist recruitment firm could guide you along the journey. People search for jobs in different ways too. Consider LinkedIn posts, online listings, or even word-of-mouth recommendations.
• Promote a positive culture. A clear vision, focus on inclusivity, and willingness to listen might all improve staff buy-in.
• Support employee development and offer benefits. Training courses, qualifications and volunteering days can all expand people’s skillsets. Meanwhile, employee benefit packages might help with staff retention too. Think life insurance, company cars or flexible working for starters.

Expanding your market presence

Leaping into new markets won’t be right for every company. After all, launching unrelated, sporadic products could simply dilute your niche or specialism.

Yet for some firms it may help to unearth opportunities. Or support diversification by ensuring you don’t put all your eggs in one basket.

Here are some initial questions to ask yourself:

• What markets and territories are the right fit? Is expansion the next logical step or would you quickly become a fish out of water? Franchising your brand to a third party might also be something to explore.
• Would you fill a genuine gap in the market? You can lean on your experience as a business owner to see which products sell consistently – and where they could be improved.
• Are you open to strategic partnerships and collaborations? Consider tie-ups with similar companies in other sectors. Could they give you a potential entry route?

Measuring and adapting

Of course, growing your business isn’t a one-off event. It’s a gradual journey that you’ll need to monitor over time.

For that reason, it’s useful to measure your progress closely. This way, you can set benchmarks and check whether you’re over or underperforming.

The following steps could support you:

• Hold yourself to meaningful KPIs. Setting realistic goals can help you to check in on progress at regular intervals. These could range from profits and unit sales to social media followers, website conversions, or even customer satisfaction scores.
• Try an agile approach. There’s no shame in turning back if an initial strategy proves incorrect. Admitting your mistake early, and changing course, could prevent months of strain or wasted time.
• Respond quickly to market shifts. You don’t always have to go with the flow. Be prepared to adjust your strategies in line with economic and market realities.
• Learn from your successes – and failures. Entrepreneurs make mistakes on a regular basis. The main thing is how they respond to them. If something goes awry, take the time to understand the root causes.

Customer feedback

Nobody likes to receive negative comments. But successful entrepreneurs can use constructive feedback as a learning tool.

Here are just a few ways you can gauge, and respond to, customer sentiment:

• Set high standards of customer service. Not every business sees customer satisfaction as a priority. This presents you with an opportunity. Adopting a proactive, client-first approach, with a willingness to go above and beyond, could fuel word-of-mouth recommendations.
• Don’t be afraid of feedback. Actively gathering feedback and reviews shows what real customers think of your services. It could be an email questionnaire or in-store feedback form. Or even just a case of checking review sites like TripAdvisor.
• Remember existing customers too. Don’t lose sight of loyal clients when evolving from a small to medium business. Loyalty schemes could support your expansion by attracting new customers. But they might also keep existing clients on-side.
• Aim for continuous improvements. Treat customer feedback as a gift, rather than a chore. It’s a way to learn lessons and pinpoint what people really want from you. Not what you think they might want.

There’s so much to get your head around when transitioning from a small to a medium-sized business. It could be choosing the ideal number of employees, setting meaningful KPIs, or sourcing new financing.

Whatever your line of work, taking a measured, steady approach should stop you from rushing into any decisions. What’s more, the steps above should give you a clearer picture of the big questions you’re likely to face.

Want to know more about how to grow your business? Read our handy Tyl Talks guides.

Disclaimer

This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.

Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.

Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.