Small start-ups and SMEs that are experiencing rapid expansion can experience a phenomenon known as “overtrading” also known as operational capacity problems. Put simply, overtrading is a business experience whereby companies will take on more orders or accept more clients than they can really cope with.
As they don’t have the functional resources to deliver these orders – be it in the way of a retail store, a fast-food business or an online marketing agency – due to the fact they don’t have the operational capacity to deliver.
Operational Capacity – What Does This All Mean?
You might think you’re a burgeoning SME growing rapidly, and the world is your oyster. However, by taking a moment to evaluate your business and the way you do business you could identify whether your business is overtrading as an entity?
Earlier we outlined how “operational capacity” issues could create overtrading problems. But what is ‘operational capacity’? What this means is that the entirety of your business processes and how you deploy your assets therein all in the context of fulfilling customer sales, orders and meeting their expectations highlight your operational capacity.
Problems from not having enough staff, not enough on-hand stock availability, the wrong premises, not having the right amount of working capital to deliver in full and on-time. These issues collectively amount to ‘operational capacity’ problems.
What Can You Do?
Preparation is key. You need to make sure your business has an air-tight business plan. Don’t worry you don’t need to hire business analysis or pay a fortune for a business plan. You just need a sound document – Prestige Business Management can help you identify the type of ‘operational capacity’ problems that your business idea could face?
By forward planning your business you will understand the overall level of business your company will generate and from this, you will have created a profit and loss document, along with a functional cash flow forecast which will complement your overall business plan.
The real solution to understanding ‘operational capacity’-based problems is to understand your business better. This is about planning ahead and understanding market conditions – you don’t have to become an economist. You just need to understand the ‘lay of the land’ and your customers. By planning ahead, understanding your customers’ needs and deploying your capacity in a more nuanced way you can make sure that you meet customer expectations and avoid operational capacity problems.
Why not call Prestige Business Management today on 0203 774 2927? We can help you understand ‘operational capacity’, help you with business planning and forecasting allowing you to enhance your awareness and build a strong business for the future.
This Prestige Business Management article is for guidance only – please do not utilise the guidance above as a form of financial advice.