I’ve been there myself. My first software business plateaued at around £800,000 of turnover for two years before finally breaking £1 million.
On more than one occasion I felt that I’d never get there — it was extremely frustrating — but we eventually landed a few big contracts and suddenly were into seven figures.
And that’s when I noticed a real change in the pace of growth. It’s a hell of a lot quicker to get to £2 million from £1 million than to £1 million from zero.
Growing pains
But let’s not get ahead of ourselves. Why is getting past £1 million of turnover such a challenge for many businesses? There are a number of reasons.
For starters, it’s a psychological barrier. £1 million of revenue is a symbolic number and there’s no doubt that some businesses start panicking as they get close to the line. But psychology isn’t the primary reason why SMEs struggle to get their turnover into seven figures.
What actually happens once you get to £750,000-£800,000 of turnover is that you reach a crossroads. You have to make a decision about where you want to go.
Most businesses, until they reach circa £750,000 of turnover, are lifestyle businesses. They’re in good shape and their directors, who have worked very hard to get there, are earning a great income. In fact, they’re probably starting to think that they have pretty much made it.
Companies in this position also have a number of staff who rely on them and a relatively stable customer or client base. In short, all is fairly rosy.
But paradoxically, that’s often the biggest problem.
If companies want to get over the £1 million mark — and transition from a lifestyle to a commercial business — then they once again have to get their hands dirty. This, however, can be hard for the directors who have already expended a lot of energy getting to that point.
And in many cases they may not even want to take their business up to the next level. They may be happy to keep things where they are.
In short, once you get to £750,000 or so of turnover, it’s decision time.
Extra risks
For the sake of this article, let’s presume a business does want to grow into a £1 million plus company and wants to do so organically, i.e. minus investment.
The first thing the company will have to prepare itself for is taking on additional risk in the form of new hires. After all, if you want to grow you need to be positioned to grow and that requires staff.
There’s no point pushing for extra work if you can’t accommodate it — that can even lose you business as existing clients or customers suffer.
So, a company that is financially comfortable employing eight people may need to employ 10-12 people to be ready for when the expected new business comes in. This can stretch its financial position and, for a time at least, be genuinely nerve-wracking.
Just like setting up a business, getting over the £1 million hump is another big punt. The new sales director you have hired to help get you there could be a massive catalyst of growth, or a complete failure.
Likewise, the new business you’re betting on coming in might not come in at all, or might take a lot longer to come in than you projected. Again, nail-biting stuff.
To place less pressure on the company’s finances, it may also be that the directors decide to freeze, or take a drop in, their own remuneration, which again can trigger some push back from certain corners.
In summary, sacrifices need to be made and risks taken but, done in a structured fashion with clearly defined goals, the chances of succeeding are higher than you might think.
Pushing on
If there’s something to keep you going as you ride out the nervy period, it’s that once companies do get past £1 million turnover, it’s a lot easier to push on and get to the £2 million mark. The hardest yards of the business are usually behind them at this point.
Once your turnover passes £1 million, you also start appearing on the radar of investors and other, bigger companies in your sector, which can lead to a whole new range of commercial opportunities.
But to reiterate: to get to this point you have to take on risk all over again. So what’s it going to be?
Further reading on business planning and expansion:
