Managing Post-Funding Decisions – Avoiding the OPEX Trap

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Managing Post-Funding Decisions – Avoiding the OPEX Trap

Securing an injection of funding is a pivotal moment for any business. It validates your vision and provides the resources to pursue growth opportunities. However, this influx of cash can tempt management teams to expand operational expenditure (OPEX)—particularly through increased headcount—without fully considering the financial impact.

While optimism and ambition are crucial, it’s essential to remember that increasing OPEX too quickly can erode profitability, leaving businesses scrambling to maintain performance rather than improve results. This guide explores how to make smarter, more sustainable decisions when managing post-funding spending, linking costs to revenue, and maintaining profitability.

The Challenge: The Temptation to Over-Invest in OPEX

One common post-funding misstep is rapidly expanding management headcount or other fixed costs to demonstrate progress. With the average UK management salary at £40,000, adding headcount can quickly escalate OPEX.

It’s vital to calculate the financial impact of these decisions. For example:

  • At a 5.7% gross profit margin (the UK average in 2023 and 2024), every £40k in costs requires £702k in additional revenue just to maintain profitability.
  • The margin for error is slim, and poor planning can lead to negative outcomes, even in high-growth scenarios.

This makes it imperative for businesses to align spending with achievable revenue targets while ensuring that profitability is preserved.

The Context: Trends in UK Gross Profit Margins

Over the past three years, the average gross profit margin for UK companies has shown modest improvement:

  • 2022: 3.98%
  • 2023: 5.70%
  • 2024: 5.70%

While these figures represent a positive trend, they also highlight how narrow profit margins remain for many businesses. It’s important to note that these averages vary significantly by industry, meaning your specific gross margin may be higher or lower.

This variability underscores the importance of understanding your business’s unique financial metrics before making significant OPEX decisions.

Recognise Internal Pressures to Expand Teams

It’s not uncommon for existing management to push for the recruitment of additional subordinates after a funding round. In my experience, your management team will often be convinced they need more heads to handle the additional workload and expectations.

While these requests can have merit, it’s essential not to take them at face value. Don’t assume the need for additional headcount is entirely factual. Instead, work through the specifics:

  • What additional effort is required, and is it truly beyond the current team’s capacity?
  • Can the workload be redistributed, streamlined, or supported through tools or processes before committing to new hires?
  • Will this new role genuinely alleviate constraints or simply create new layers of management?

Taking the time to evaluate these pressures critically helps avoid the “easy option” of expanding headcount unnecessarily and ensures every hire contributes directly to value creation and sustainable growth.

Challenge the Justification of Additional Costs

I often hear management teams justify a £40k investment by breaking it down into monthly salary terms—seeing it as a manageable £3,333 per month. While this might make the cost feel more palatable, it’s only part of the picture.

Instead, consider the £702k in additional revenue required to cover that £40k annual cost (based on an average 5.7% gross margin). Spread that revenue target over 12 months—suddenly, it’s a staggering £58,500 in extra revenue per month just to stand still.

When viewed from this perspective, does the investment still feel like a “no-brainer”? Reframing the conversation this way encourages leaders to assess whether the additional cost is truly necessary and whether the associated revenue targets are realistic.

Reframing the Post-Funding Conversation

Instead of asking, “What can we do with this funding?”, ask:

  • “How much additional revenue is required to offset new costs?”
  • “Are these expenditures sustainable given our profit margins?”
  • “How can we optimise existing processes before increasing fixed costs?”

By shifting the focus from spending to sustainability, businesses can avoid common pitfalls and ensure that growth efforts lead to tangible, profitable results.

Practical Framework for Post-Funding Decisions

1. Understand the Financial Impact of Additional Costs

With average UK gross profit margins at 5.7%, it’s essential to calculate the revenue required to break even on new expenditures. For example:

  • Every additional £40k management salary demands £702k in new revenue to maintain profitability.
  • To improve profitability, the required revenue is even higher.

This highlights how even modest increases in OPEX can have outsized implications for revenue targets.

2. Optimise Existing Processes Before Expanding

Use funding to address inefficiencies and strengthen existing systems before committing to increased OPEX. Scaling flawed processes amplifies inefficiencies, leading to wasted resources and reduced profitability. Focus on:

  • Automating repetitive tasks.
  • Streamlining workflows.
  • Enhancing operational systems to handle growth without proportional cost increases.

3. Invest Strategically, Not Reactively

Expanding headcount is often necessary for growth, but it should always align with clear ROI. Before making new hires, assess whether the role:

  • Addresses a critical constraint to growth.
  • Will lead to measurable revenue or efficiency gains.
  • Could achieve the same outcomes through outsourcing or technology.

4. Link Expenditure to Revenue-Generating Activities

Ensure that every expenditure contributes directly or indirectly to revenue. For example:

  • Instead of hiring additional management, could a combination of junior roles and improved systems achieve similar outcomes at a lower cost?
  • Are you investing in sales or marketing capabilities that will drive the necessary revenue growth?

5. Foster Financial Awareness Across the Team

Educate your leadership team on the relationship between OPEX, profit margins, and revenue. Encourage them to think critically about how each decision impacts the bottom line. This not only leads to better decisions but also creates a culture of accountability and strategic focus.

Key Questions for Post-Funding Spending Decisions

  • Does this expenditure align with our growth strategy, or is it reactive?
  • How much additional revenue is needed to cover these costs?
  • Are our current systems optimised to handle growth, or are we scaling inefficiencies?
  • Could alternative solutions achieve the same outcomes more cost-effectively?

The Leadership Advantage: Sustainable Growth Over Quick Wins

Post-funding decisions set the tone for your business’s next phase. While it’s tempting to ramp up OPEX to deliver immediate results, it’s crucial to prioritise profitability and long-term sustainability.

By understanding the financial implications of decisions—such as the revenue required to support an average £40k management salary—you can ensure that your growth efforts are strategic, measurable, and sustainable.

At NorthCo, we specialise in helping leadership teams navigate these critical moments. Our tailored leadership and operational support services ensure that businesses maximise the value of their funding while avoiding common pitfalls.

Conclusion: Grow Smarter, Not Harder

Post-funding growth should be exciting, not stressful. By linking spending to achievable revenue targets and maintaining focus on profitability, you can avoid the OPEX trap and position your business for sustained success.

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About the Author

Trevor is the Managing Partner of NorthCo, a fellow of the Institute of the Motor Industry and a member of the Institute of Interim Management. Trevor is a respected C-Suite leader, Chairman and professional Interim Leader. For over a decade, he has provided interim leadership solutions to private equity, venture capital, and asset-backed firms. Whether it’s to stabilise a business during a turbulent trading period, fill a temporary skills gap or support a management team to navigate challenging situations, Trevor’s wealth of experience and proven track record in delivering value creation and retention plans demonstrate his ability to lead and support operational management teams effectively. To find out more about his approach, explore his LinkedIn profile and read what others say about Trevor.

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