How to manage business growth.

• Author: Johnson, Kaylene

Now that your company is up and running, here are tips to keep it moving ahead.

Imagine starting up a business and getting more orders for gizmos than you ever dreamed possible. So you gear up production, hire more help, rent a bigger building and watch the money flow in. Right?

Not necessarily, warn businessmen who have been there. Unmanaged growth can burgeon right into bankruptcy if certain precautions aren't taken to direct growth toward profitability.

So, what's the key to good management? And how do successful entrepreneurs survive growing pains? The answer lies in weaving sound management and accounting principles into the fabric of your individual business.

Anticipate Growth

One businessman likens managing growth to rafting a river. "You can take a snapshot of it, and hold it -- a monthly report, for example," he says. "But you have to have a mental vision of this thing flowing."

The more you anticipate growth, the better you can navigate uncertain waters.

"Anticipating growth is very important," says Joe Schierhorn, vice president of Northrim Bank's commercial loan department. "You need to ask, 'How much are we going to grow and at what gross profit percentage?'"

Projected sales volume will tell you the amount of money available to generate capital. The business needs systems and people to produce that sales volume. For example, you may need to hire more people, buy a computer and invest in more equipment. That means increased costs in production due to increased overhead.

The key is determining whether that sales volume and the resulting gross profits will cover the increased overhead of your growing business. If not, then now may not be the time to buy that deluxe gizmo-tron you've been eyeing for your operation.

Raise Capital

If you've decided the business simply will not grow without the gizmo-tron, and sales projections support your hunch, now may be the time for an influx of capital.

There are several ways to raise capital in an existing business.

First, you can contribute money from personal funds. According to bankers, there's no place like home for finding funds to grow a business. Banks generally require 20-percent to 50-percent owner equity before approving a loan.

"The biggest challenge for a small business is bringing in more capital to fund growth," Schierhorn says. "It's not possible to fund growth entirely through loans. Banks don't lend 100 percent of the costs."

You can also sell a portion of the business and take...