Scaling a Small Business Part Two: More Money, More Problems
Over the last two years, I've learned more than the past nine combined.
To sum it up: The ALC journey has been far from linear.
Scaling a business has been filled with numerous ups and downs, offering rewarding successes and challenging setbacks.
Along the way, I’ve realized that money is the topic that doesn’t get enough attention.
In the beginning, you never seem to have enough, so you often react instead of responding thoughtfully, all in an effort to just make more.
For me, "more" always felt like a somewhat arbitrary number—$10,000 or $50,000, just something north of where we were. But the real issue is looking at money holistically.
Once you reach that number, what’s next?
More money brings more problems–it doesn’t make them go away. The focus shifts from mere survival to managing the margins.
In this post, I want to explore some of the monetary challenges of scaling—challenges that haven’t been discussed enough.
I’ll share what I’ve learned along the way, which I hope is helpful as you grow, whether it’s rapidly or slowly. Eventually, we all face these same questions and crossroads.
The Small Business Tax Puzzle
One of the most significant challenges I encountered as my business grew was navigating the tax implications of increased revenue.
It’s no secret that the more you earn, the more you owe to Uncle Sam, but the sheer amount can be staggering. This realization motivated me to explore every possible avenue to offset taxes while maintaining intentional spending.
A key area I focused on was employee benefits, such as offering 401(k) plans and other components of a comprehensive benefits package. These can provide substantial tax credits depending on your state and specific circumstances.
I also started utilizing an accountable plan recommended by my fantastic tax advisor, Katie Hardy. This plan, particularly beneficial for home office deductions, allows you to write off a percentage of home improvements as business expenses. For example, if you replace your roof, a portion of that cost can be deducted, effectively putting money back in your pocket. I wish I had implemented this strategy sooner—it's been a huge help in saving on taxes.
Another critical aspect to consider is the quarterly estimated tax payments. These payments were relatively small in the past, but they’ve now become a significant part of my budget. Despite all the deductions and tax-saving strategies available, you’ll inevitably pay more as your business grows.
The key is planning for it so your tax bill doesn’t come as an unwelcome surprise!
Keeping More of What You Earn
When your business starts pulling in more revenue, having a solid plan for managing those funds is essential.
One strategy that’s worked well for me is the Profit First method. It involves setting up different accounts to allocate money for specific purposes.
If you’re seeing higher income, this might be the perfect time to open a high-yield savings account just for your tax obligations. The bonus? You’ll earn some interest on that tax money. Even if it’s just a couple of hundred dollars by year’s end, that’s extra cash you can use to offset your tax bill.
Reinvesting in your business gets much more exciting when you have extra wiggle room in your budget.
Whether it’s finally upgrading that old computer or investing in client gifts and team improvements, these expenses can boost your business and offer some tax benefits. After four years, I recently took the plunge and bought a new computer—it felt like a significant step forward and honestly makes saddling up to the desk so much better.
Another crucial part of managing your growing revenue is getting your business structure right for tax purposes.
Chatting with a tax advisor is the best way to determine what’s right for you. Don’t rely on Google; leave this to the professionals.
They can help you navigate your options and find the most tax-efficient structure for your unique situation. It’s worth getting their expert advice to ensure you make the most of your hard-earned money.
As your revenue grows, remember to revisit your payroll strategy. When I first noticed more money coming in, I worried about losing too much of it to taxes. My accountant suggested bumping up salaries—paying myself more and the team more. This helps keep top talent and lets you reinvest in the most valuable part of a service-based business: the people who keep it running smoothly.
Cash Flow Conundrums
As your revenue starts to climb, you’ll need to monitor cash flow management closely.
It’s super exciting to see that bank balance grow, but it can also lead to overspending if you’re not careful.
With more money coming in, you can create well-thought-out budgets for different parts of your business—whether it’s marketing, team upgrades, or planning events and retreats. It’s a great opportunity, but it also means you need to be disciplined.
Just like with personal finances, where a higher income often means higher spending, your business can fall into the same trap. The extra cash in your account might tempt you to spend more freely, but staying frugal and keeping a close eye on expenses is important. Remember, revenue and profit aren’t the same thing.
As your revenue grows, your expenses will likely rise too. It’s crucial to manage these costs carefully and avoid unnecessary splurges.
Finding the right balance between reinvesting in your business and keeping some money aside for taxes is vital. It might feel like a balancing act, especially if you’re not used to handling more significant amounts of money, but it’s an integral part of ensuring your business continues to grow.
Growing Pains in Financial Management
Is your financial team is up to the task?
When starting out, having a primary bookkeeper is a solid first step—it's one of the first things I outsourced because managing finances wasn’t my strength.
But as your business grows, you’ll need more than just someone to track your expenses. You’ll want a team that can also offer strategic advice on how to manage and maximize your funds.
I’ve found that having a CPA and a bookkeeper, each with their own roles works well. Early on, I got advice to have two separate professionals look at my books, and it’s been so beneficial. They each bring their expertise, giving me a fuller picture of my finances than just one person could.
As your business expands, it might be time to reevaluate whether your current financial support still meets your needs.
You might need a more comprehensive solution or different experts to support your growing business better. It’s definitely worth exploring if there’s a better fit to help you manage your finances and support your continued growth.
Giving Back as You Grow
Lastly, let’s touch on the importance of giving back.
Donating to charity and engaging in philanthropy is a meaningful way to make a difference and can offer some financial benefits, such as tax savings.
Consider sponsoring a local sports team or supporting community events. Local sponsorships are often an overlooked but effective marketing strategy. They’re typically affordable and greatly enhance your business’s visibility while contributing to a good cause.
You don’t have to limit your giving to local efforts. Supporting organizations you believe in, whether through donations or sponsorships, can also be a valuable addition to your marketing and website.
Highlighting that a portion of your proceeds goes to charity can improve your brand’s image and resonate with customers who share your values.
Being able to give back is a privilege, especially given the challenges many small businesses face.
The cash flow crisis is real; unfortunately, many businesses fold due to financial pressures. If you’re not struggling with these issues, you’re in a fortunate position, and it’s important to make the most of it.
By strategically managing your money and incorporating philanthropy into your business model, you can benefit your team and community and maintain more of the money you’ve worked so hard to earn.
Navigating New Rules and Regulations
As your business expands, you might find yourself navigating a new set of rules and regulations that weren’t even on your radar.
What was once a simple operation now faces complexities that could catch you off guard if you’re not paying attention. From data privacy laws to industry-specific regulations, staying compliant becomes a more significant and critical challenge.
Compliance Issues You Might Not See Coming
When your business is small, some regulations don’t apply—but that changes as you grow. Data privacy laws like GDPR or CCPA might become relevant if you’re collecting more customer data.
Employment laws can kick in as your workforce grows, and specific industry-specific regulations may now apply to your larger operation. And if you’re thinking about expanding internationally, you’ll need to navigate international trade laws and possibly even face antitrust considerations as you gain market share.
Simple Steps to Safeguard Your Success
To keep things running smoothly, it’s a good idea to develop a compliance checklist and review it regularly. Building a culture of compliance across your team can also help avoid headaches down the road.
Stay informed about any upcoming regulatory changes in your industry. Consider investing in compliance management software or building strong relationships with legal and compliance experts. Regular compliance training for your team and periodic internal audits can help you catch issues before they become major problems.
Make Your Money Work for You: Smart Ways to Use Extra Cash
Create an Emergency Fund for Business Fluctuations
Think of this as your business safety net. Just like you'd save up for a rainy day in your personal life, having an emergency fund for your business can give you peace of mind when unexpected expenses pop up or cash flow dips. It’s like having a cushion to soften the blow, so you’re not scrambling to cover costs or, worse, having to dip into funds earmarked for growth.
Invest in High-Yield Business Savings Accounts
You’ve worked hard for your money, so why not make it work a little harder for you? Parking extra cash in a high-yield business savings account is a simple way to earn passive income. Even if the interest doesn’t seem huge, it can add up over time, giving you a bit of a boost when it’s time to cover those more significant expenses or reinvest in your business.
Invest in Employee Training and Development Programs
Your team is your biggest asset, so why not invest in their growth? Offering training and development programs helps your employees build new skills and boosts morale and retention. Plus, a well-trained team can improve your business’s overall efficiency, leading to better results and, ultimately, more revenue. It’s a win-win all around.
Upgrade Technology and Equipment to Improve Efficiency
Now might be the perfect time to invest if you’ve been putting off that tech upgrade. Whether it’s faster computers, better software, or more efficient machinery, the right tools can make a huge difference in how smoothly your business runs. Plus, newer technology often comes with features that can help you save time and money in the long run, making it a smart use of extra cash.
Explore Opportunities to Bulk-Purchase Inventory at a Discount
Got some extra cash? Consider buying inventory in bulk. Not only can this save you money in the long run, but it also ensures you’re well-stocked for busy periods. It’s a practical way to stretch your dollars further and get ahead of potential supply chain issues. Plus, bulk purchasing often comes with discounts that can add up significantly over time.
Setting Your Business Up for Long-Term Success
As you scale your business, you’ll quickly discover that more money brings opportunities and challenges. From navigating the complexities of tax strategies to making intelligent investments that keep your business growing, managing your finances becomes crucial to your success.
It's not just about making more money—it's about keeping more of it, investing wisely, and protecting what you’ve worked so hard to build.
Whether you’re reinvesting in your team, upgrading technology, or safeguarding your operations with the proper compliance measures, every decision you make now can have a lasting impact. So, take the time to assess your financial strategy, and don't hesitate to lean on your financial team for guidance.
After all, this is about ensuring your business isn’t just surviving—it’s thriving.
If you’re ready to take your business to the next level on the marketing side of things, perhaps invest in that new website or refresh your marketing but aren’t sure where to start, let’s connect.
Together, we can create a plan that gives you the ROI you are looking for and helps you drive confidently toward long-term success.
