Your Pacific Northwest technology business is growing. The expansion of your company will open exciting new opportunities for business. However, with those new opportunities come with added risks, and inefficiencies. Are you prepared?
Most companies have mastered managing working capital and minimizing risks since the Great Recession. They had to do it to survive, and now they have to do it to remain competitive. However, entertaining expansion or new business opportunities without a thorough examination of the implications and assessment of other key risks can be a recipe for failure.
When scaling your business, efficiency is of utmost importance. Achieving scale should be the goal of all companies, especially those in the technology sector. A critical path to scale is automating the movement of working capital in your business. An experienced banker with technology expertise can offer consolidation advice, including identifying products that automate your billing, collection, and payables functions.
Seeking advice is an important step in the automation process. Automation can benefit your business in many ways. It limits manual labor, lowers costs, and increases productivity. It also allows your business to repurpose individuals who have historically performed those manual tasks on revenue generating activities. The bottom line of automation: Minimize FTE and increase ROI for your business.
In addition to creating efficiencies, a company’s expansion plan should include a risk analysis to assess uncontrollable factors. Next, you must consider factors that could impact the expected financial outcome of expansion.
Foreign Exchange Rates
Whether a business’s sales or purchases are dollar‑denominated or not, currency volatility affects its costs and prices. Since 1975, there have been at least 20 major reversals in exchange rate direction, with trends lasting from one year to five years. Currency markets are expected to remain volatile due to uncertain domestic and international monetary policy. I advise attention to currency volatility in “What if?” scenarios, particularly as companies consider expansion in new markets.
Labor
In response to a worsening labor shortage, employers are increasing wages and using innovative recruiting techniques. Average hourly wages have increased by $2.45 since early 2007.
It used to be that the primary consideration given to labor was the length of outstanding union contracts, the company’s history of labor relations, and its pension obligation funding status. That was before private sector unionization fell to its current level of 6.6 percent. Right now, we’re more often having dialogue about labor shortages and succession planning.
Bottom line: Companies contemplating expansion must factor in wage escalation, as well as increased costs associated with higher turnover and retention expenses.
Technology
Staying on top of sea changes across industries is a full-time job for Wells Fargo. Every experienced banker has a story about the deal where neither they nor their client anticipated the category‑killer ahead. What are the category killers that could require your company to redirect spending away from existing technology? What are the capital budget implications?
Risks presented here are only a few to consider when undertaking expansion. Others are customer and supplier concentrations, regulation changes, environmental concerns, and — one of the most important risk factors ―management. Has the company ever done anything like this before? What is its track record of execution on new opportunities? What has its reaction time been to unexpected bumps in the road?
Credit
When considering business expansion, flexibility is essential. If your business has the necessary, mission‑critical enterprise software, a credit line could be a solution for building flexibility into your finances. Capital is an asset that should be harnessed. It builds flexibility to create working capital or growth through acquisitions.
No matter how complex or simple the automation and risk profile, partnering with a trusted bank early in the expansion process is an important first step. Addressing risks and finding efficiencies that come with growing business will help technology companies avoid common pitfalls. An experienced banking partner is vital in navigating this new world of opportunity. Building flexibility into expansion plans will help companies navigate risks and grow without breaking the bank.
