Moving from £1m to £5m is tricky

Why growing from £1m of revenue to £5m is harder than growing from £5m to £10m or more.

It may sound counterintuitive, but when you think about it, it isn’t.

Growing a £1m business involves changing from a founder-led startup to a repeatable, sustainable business. It involves building teams, finding reliable marketing channels and creating formal processes and systems that will underpin growth. Once a business gets to £5m it’s clear that the core business model works, it’s now just about scaling, hiring more managers and entering new markets.

Funding is the biggest challenge for a £1m - £5m business. Growth needs cash and the gap between spending and collecting money grows as the business grows. Good working capital management and reliable funding (whether it’s a bank or investors) are needed.

Arranging financing takes time and requires a lot of preparation, no matter who is providing the finance. It requires business plans and cashflow forecasts so it’s important to apply for funding well before you really need it.

Profit margins often fall as the business takes on new staff before the revenue is won. Patience and nerve are needed to see it through, as well as commitment to a well-thought-out strategy and business plan.

Good financial information is essential – monthly management accounts, a proper budget/forecast with variance analysis and real cash flow forecasting (usually 13-week rolling) produced by someone with strong financial expertise.

Choosing the right customers is key – it’s tempting to accept a big contract at lower margins and long payment terms to secure the growth, but it must be profitable and worth investing in. Otherwise margins fall, cash dries up and growth stalls.

It’s important to build systems and reporting that flag problems early on.