Ten steps for sustained business growth
Thursday, July 12, 2012/
Just like nature, fast growth in business is exciting, but sustained growth is an ongoing process. A business that grows too quickly can run into difficulties. A business that grows too slowly, or not at all, can fail. Ensuring that growth is sustainable relies on a number of important elements that need to be managed effectively.
When it comes to planning, most of us have heard the statement ‘If you fail to plan, you plan to fail’. While it might sound like a bit of a cliché, planning is a cornerstone of any business or personal success. Businesses that succeed in sustaining their growth over time are those that plan effectively and follow a set of common elements. Organisations of any size have greater success if they establish and maintain a solid business plan. This is the most important element for successful sustained growth in business. There are, however, a number of important elements that all businesses need to manage effectively. These are our top 10 tips for sustained growth.
1. Cash flow
Savvy entrepreneurs regularly track how their businesses are progressing, and work with rolling budgets and forecasts. They understand their key financial ratios. They also know that getting paid on time and managing their outgoings is critical to business success.
TIP: Don’t underestimate the value of financial information, and understand the difference between profit and cash flow.
2. Access to finance
Usual forms of finance include lines of credit, equipment financing, factoring and commercial real estate loans. These can be tailored to suit your particular business needs and situation.
Don’t forget, however, that financing your business is not all about loans. Can you make it easier and more attractive for your customers to pay you and to do so on time? Can you consolidate your suppliers and get more favourable terms? Can you get your suppliers to finance any new product, or to subsidise marketing costs? Do you get invoices out on time and manage your slow payers? And, do you manage your inventory well?
TIP: Access to finance can come from a number of sources and in different forms. You will be able to take advantage of the best possible options by ensuring your financials are accurate and up to date.
Increasing sales by reducing your prices, and consequently your margins, may not be good business for you. Likewise, increasing sales while disproportionately increasing your bad debts or slow paying customers will also cause you grief.
TIP: Ensure your accounts receivables are healthy. Consider strategies other than price, eg segmenting your customers into different groups, so you can cater for their specific needs differently, may help you to maximise profits without losing accounts.
4. Government incentives: research and development
In a competitive environment, companies must continue to innovate in order to reduce costs, improve efficiency, increase asset life and develop new products and services. This drive for an increased competitive position often produces readily identifiable ‘tax’ R&D activities within a company, including activities associated with products, processes, maintenance, environment and test trials.
TIP: New legislation came into effect on July 1, 2011. Changes include 45% refundable tax credits for companies with turnover of less than $20 million, and special rules for companies and corporate groups with annual group turnover of less than $5 million who spend less than $2 million on R & D. Make sure you understand the opportunities.
5. People and resources
With a little effort and creative thinking you can build and nurture a team of efficient, loyal and hardworking employees without spending money you don’t have. Some of the best motivators include simply saying thank you for a job well done, taking the time to listen to your people, encouraging creative thinking, providing inspiring speakers to motivate your employees, providing more direct time with the boss, and supporting not-for-profit organisations with volunteered time and services.
TIP: More money is not the best or the only motivator for staff.
6. Organisational structures
The difficulty in structuring is knowing how to align the commercial needs of your business with its tax requirements in a way that produces the best possible result. A growing business may have outgrown its current structure, may need to establish new structures, or wish to wind up existing ones. The tax implications can be extensive; from a capital gains tax, stamp duty, payroll tax, fringe benefits tax, GST, or even an international tax perspective.
TIP: It is usually what you don’t know that gets you into trouble – not what you do know. The Australian tax system is one of the most complex in the world, and generally you only get one chance to get it right. Obtaining the right advice on the best structure for your business is critical to sustained growth.
7. Strategic planning
Do you know what metrics you should have on a ‘dashboard’ to run your business? Focus on the actions that create the results. What are your key performance indicators? Are they relevant and do the right people know what they are? Do you make sure you schedule in time to regularly review your ‘dashboard’ and strategic plan.
TIP: Measure more than money, and measure the things that matter.
8. Extracting value
There are a number of ways to extract value, and a full exit may not be the most effective option. Perhaps a partial exit may be an option if you have a strong business that is attractive to investment groups or venture capitalists, and you want to release some cash now but stay in the business until it has reached its next level of growth and profitability.
Exit options you may be able to consider include: a trade sale, handing over ownership to relatives, a management buy-out, stock market flotation, or a voluntary liquidation.
TIP: Most controlled options for exiting a business trigger substantial tax and capital gains tax liabilities. This is an area where you should seek professional tax advice on restructuring.
9. Expanding overseas
A natural consequence of growth can be reaching critical mass locally and looking to expand into overseas markets. The challenges include language barriers, cultural differences, currency exchange issues, conflicting laws and the difficulty and costs of international travel. Nevertheless, the corporations that overcome these have a distinct advantage over their rivals: the opportunity to capture important market share.
TIP: Not all countries are alike, and it is not always the most obvious markets that are the best places to start. Ensure you take advantage of international trade agencies such as Austrade.
10. Expanding products and services
Identifying where your products or services are in their life cycle is central to your profitability. Effective research into your markets and competitors will help you do this. The stages involve: developing your product, launching your product, growing your market, and product maturity, followed eventually by market decline.
TIP: New products and services are the lifeblood of all businesses. Investing in their development is crucial to business growth and profitability.
While this is not an exhaustive list of important elements for business to manage effectively, they should all be considered as part of any organisation’s business planning process.