Getting your business in shape for growth
Current Issues | Owner-managed businesses | 27th March 2017
It’s rare for us to meet a business owner who doesn’t want to grow their business in some way. The look and feel of that growth ambition amongst the entrepreneurs we support is, however, often different. Some find that market factors are bringing rapid growth and they are struggling to keep up. Others are very much in control of their business growth and are proactively pursuing opportunities to further develop it. Each growth goal warrants a different strategy and plan, one which is unique to that business, its ambition and the market pressures it faces.
Whatever form growth takes, it’s important that a business is ‘in shape’ to successfully navigate the journey ahead. So in this article I’ve shared insight and tips on aspects that can have a positive impact on a growth plan and its implementation.
Visualise what you’re going for
To begin with it is important to be clear what the growth outcome will look and feel like for your business. Think beyond a notional turnover percentage increase and factor in more of the ‘how’ you will grow, for example:
- Growing the team and/or moving to new premises to be more effective in serving a growing customer base and meeting demand.
- Expanding the market territory (from local, to national through to international).
- Diversifying and introducing new product or service offerings.
- Merging or collaborating with a company to reach a bigger market.
- Acquiring a company to become a bigger player in the market.
Each of these goals will highlight different elements that the business needs to focus on in the short, mid and long-term to make that growth a reality.
By visualising the outcome of your growth, (and comparing it to the business now) a clearer picture of the journey ahead will start to emerge. Your business then needs to do everything it can to maximise its potential for that. If you are looking to increase resources, attract outside investors, merge, or go to the bank for additional funding to achieve your growth ambitions, then you’ll need to demonstrate the business is in as good a shape as you can get it.
Create your growth budget
To help you get the business fit for growth, define a budget for your business with the growth goals right at the heart of it. This needs to be a budget that is practical to follow and easy to reference.
Your budget should establish both the income and expenditure targets you want to have achieved at different stages of the growth journey. Also factor in any seasonality or known commitments on the horizon and, once you have defined your first draft budget, test its resilience by applying different ‘what if’ scenarios and variables. For example, what if supplier costs increase by 5%, what if sterling drops further to the euro by certain number of points etc? What will your resulting actions be to ensure your growth plan remains on track?
Identifying what cash flow and other business hurdles are on the horizon will enable you to plan more effectively. For example, you may want to put in for a bank loan or overdraft sooner than expected to cushion the impact of a particular challenge.
Keep your hands on the steering wheel
Given your growth goals and budget, decide which Key Performance Indicators (KPIs) you need to closely monitor during the growth journey (for example, new business leads generated and converted, your cash balance, number of debtor days, level of gross profit and/or net profit). Also, review the efficiency of your current business operations and consider alternatives to improve it. Focus your efforts on making sure your relationships with your key customers and business referrers are solid. Also look at ways to ensure the quality of their experience of working with you remains constant as you evolve and grow.
Get greater control over your cash-flow
Careful cash flow management will be crucial as you invest in whatever resources you need to achieve the growth goal. It will really help to have clarity of business expenses, but in a way that avoids you drowning in management information and decision-making slowing unnecessarily as a result. Consider utilising digital accounting and bookkeeping software, which provide Directors with quicker management information in clear dashboard formats.
To also help you keep control of cash, review your debtors list frequently and ensure overdue invoices are being chased up quickly. Check your terms of business contain explicit payment terms and that you demonstrate keeping to them. Also if you have any understandings or informal contracts currently in place with customers or suppliers, ensure they are formalised so they can be relied upon in the growth journey ahead.
Encourage your whole team to support the growth plans. An easy way for them to get involved is to use 'bottom up' budgeting. This encourages everyone in the office to give input on areas over which they have some control – try targeting a 10% saving to reduce any wastage or duplication of effort. The savings (money and time) generated could be reinvested/ diverted to those areas of the business driving the growth.
Having the right talents in place
You will need a strong and effective management team in place to help the business achieve its growth plans in a smooth and seamless way. It’s therefore important to maximise on the management capability in your organisation and ensure the right skills and talents exist. If you have individuals whose talents are pivotal to your growth plans, consider how you can incentivise them to stay with you. Can you utilise something like the Enterprise Management Incentive (EMI) scheme to grant share options to key employees, tax efficiently?
Do consider your staffing needs in your growth plan sooner rather than later. It often takes longer than you think to get the right team in place so be proactive in anticipating the recruitment, training and retention activities you need to deploy. Wherever possible, try and avoid your growth plans stalling because you don’t have the right teams and talents in place. If staffing costs cause a possible cash-flow problem, investigate which talents and skills could be outsourced (say for short-term projects) and which are better kept in-house.
Additional preparations for acquisition-led growth
If your growth plans feature a merger with, or takeover of another company, your planning should also factor in:
- Plumping up your profitability – the more profitable you are; the more attractive you’ll be as a business to a potential merger partner.
- Rationalising your business structure – try and eliminate any complex structures and consider separating companies now that would not be part of the merger or takeover.
- Tidying up your balance sheet and improving your debt-recovery. Review the status and value of your property and other fixed assets.
Make the most of Government-backed incentives to support your growth
Finally, and depending what form your growth plans take, there may be Government incentives to help you with the resources you need. In the UK there is the annual capital allowance for companies looking to invest in equipment and systems that qualify under the plant and machinery categories for tax purposes. The allowance is currently at £200k and enables companies to invest in such equipment and systems more tax efficiently. It applies to different types of businesses, including service, retail as well as manufacturing companies.
Other growth plans may qualify for R&D (Research & Development) tax credits. Also consider attracting investors by offering the shares that qualify for Enterprise Investment Scheme/ Seed Enterprise Investment or explore regional economic development funding. Make the most of whatever incentives and funds apply, to ease some of the pressure in financing your growth.
Despite current economic uncertainty in the UK, it’s good to see many business owners with a keen appetite to grow their businesses. With advances in technology, improvements in production and working methods, and the accessibility of markets, growth is being achieved at a much faster pace. To ensure your growth journey does indeed enhance your business, and doesn’t weaken or harm its values and reputation in any way, you need a plan that’s fit for purpose.
This means having clarity of what you want to achieve and establishing a plan and budget that’s been tested to support it. Defined Key Performance Indicators (KPIs), considered allocation and monitoring of resources along the way will also help ensure the growth journey doesn’t become a hair-raising rollercoaster ride.
Of course none of us can predict the future and so one final tip is to ensure your plan factors in some flexibility to weather whatever unanticipated market factors suddenly crop up. Having the right team in place and a business that’s in good shape will, however, give you a strong foundation.