If you would like to speak to one of our Senior Financial Directors on future proofing your business and how they can help your business in a range of areas, click here.
The information is constantly being updated in relation to the Government’s funding response to COVID-19. This publication has been written in general terms and may not include all relevant information.
If you would like to speak to one of our Senior Financial Directors on future proofing your business and how they can help your business in a range of areas, click here.
The information is constantly being updated in relation to the Government’s funding response to COVID-19. This publication has been written in general terms and may not include all relevant information.
Using sound management reporting and project by project accounting would make it easier for construction companies to get funding from banks and other financial institutions to grow and scale their businesses, says Simon Parkins, a construction industry accounting specialist.
Many construction businesses don’t invest in good management information, says Simon, who has over 20 years experience in the construction sector and who is now a part-time FD with the FD Centre, UK’s leading provider of part-time FDs.
Instead of making informed decisions about how to run the business based on facts, Managing Directors and their boards tend to rely too much on gut instinct, he says. That makes banks and other financial institutions wary.
Why banks and financial institutions don’t like construction companies
Getting access to external finance has always been challenging for construction companies because it’s perceived to be a very high-risk sector, says Simon.
“Carillion going bust made it even more difficult than it already was,” he says. “There were already banks who would not touch construction clients, but now even the ones who were open to construction companies have put a lot more hoops in place for them to jump through.”
SME construction companies are not particularly good at investing in management information or the accounting software that’s suitable for the industry, so they are often the first things Simon recommends they do.
Having access to the banks and financial institutions that will lend to construction companies and knowing what assurance and MI they want to keep that lending position in place is really crucial.
“I’ve got connections with some really good lenders who are not put off by construction, and they’ll improve their rates and fees on that the basis the FD Centre is involved,” Simon says. “They know that we will ensure the management information they need is there.”
“A lot of construction companies simply do not understand what the banks need to get finance, which is where we can help.”
Another reason why lenders find construction companies less appealing than other businesses is that the profit margins are often quite low.
Many of the top construction companies work with tiny margins of 4% to 5% while SME construction companies are more likely to have margins of between 10% and 25%.
Using project by project accounting practices
Many SME construction companies fail to put project by project reporting into place. This results in poor MI for the business, but also in an erratically performing profit and loss position, which scares lenders.
“A bookkeeper or accountant will put together management accounts for the business, but they often report on the whole business and not on individual and distinct projects.”
“The key to success in construction is really understanding project by project performance, so you can see which ones are performing, which ones are not, and which ones contain the risk. Doing that brings the performance of the business into clear focus,” he says.
“I worked with one client with a Commercial Director who the Managing Director regarded as performing quite well. He was delivering reasonable but not great numbers, but there was no transparency to what he was saying at the monthly board meetings. When we put project by project reporting into place, he had nowhere to hide. He was found to be deficient and covering up lots of problems and issues from the Managing Director.”
“Within four months of me coming on board as a part-time FD, the Commercial Director went from a position of nearly being assigned share options and some ownership of the company to the point where it was revealed he was fundamentally underperforming and probably losing that business something in the region of £100k to £150k a month.”
Construction accounting is very different from standard accounting and many good accountants get it wrong when tackling construction accounts for the first time, says Simon.
“As accountants, traditionally, we take the ledgers, we adjust for income not recorded (bringing in work in progress) and then we adjust for missing cost (accruals). Do this for a construction company without looking at individual project performance at your peril.”
“Traditional accounting in this way is problematic, and the following issues were common to the majority of construction SME clients I have worked with:
Making income and cost adjustments without looking at individual project performance means there is no sense check / validation on the adjustments being made.
The majority of risk tends to materialise or manifest itself at the end of a construction project, and so you need a system of reporting that reflects this risk and adjusts accordingly.
The ability of the business to forecast the expected margin at the end of each project is often poor to moderate.
Clients believe that when they bring the income and cost adjustments together the accounts will be accurate. What you tend to find is that income is optimistic and overstated, and that not all outstanding costs are identified. Coupled with poor visibility of the likely financial outcome of the project, and no consideration for risk, the accounting profit tends to be overstated.”
Too few construction companies allow for the problems that inevitably occur during a project.
“Nine times out of 10 profit related things go wrong at the end of the construction project. There might be:
Liquidated damages where you’re actually on penalty clauses to finish the project on time,
Remedial works, an ongoing obligation to fix any subsequent problems which materialise with the work you’ve carried out,
Snagging at the end of a job in when the client will point out problems with the work,
Many companies underestimate the amount of work required to fulfill the snagging list for the client to be 100% happy.”
“It’s also just an industry in which people haggle at the end of the job.”
It’s for all these reasons that Simon tries to persuade clients to hold back some of the profit.
“I tell them to beware of ever taking the full margin until the client has signed the project off and physically paid the bill.”
While big construction companies have the systems and processes to put that all into place, many SMEs don’t have the knowledge or resources to do these things properly.
They might have accountants or bookkeepers, but they often do not understand well enough how to allow for how the construction industry works.
“It’s quite hard for an accountant without construction experience to know what to do or to understand the risks involved in construction,” he says.
“I have worked with many of the blue chip companies in the construction sector for the past 20 years, and there’s lots that I’ve learnt along the way. A finance director in construction cannot sit in an ivory tower playing with spreadsheets. You’ve really got to understand project performance and how things are going on operationally.”
One client has a Commercial Director who was advising the monthly unbilled income figure, and working with the accountant on the missing cost figure. They were adamant that the adjustments they were making were correct. But they had no mechanism for sense checking whether the adjustments were logical when bought together in the accounts. By introducing project by project reporting Simon showed them that their adjustments were very often incorrect. On one project they were reporting a 75% margin, on a project they were forecasting would make 35%. Moreover, the forecast proved to be inaccurate, and by the time the job was complete the actual margin achieved was 23%. With the job not even halfway completed they were already taking £250K profit on a job that ultimately only made £130K, and yet they were 100% convinced that what they were reporting was accurate.
Why construction companies need external funding
Much of the work construction companies do initially is self-financed with extended payment terms and that can put pressure on cash flow.
Projects can also go into dispute which means cash flow can stop altogether.
“I had a client with a modest annual turnover of £6M who got into a dispute with a customer who then withheld a massive £1.2M. The work was delivered, but the £1.2m was withheld because a single piece of paperwork wasn’t delivered by a deadline.”
Many of Simons’ clients are SMEs who are working on four to eight live projects at any one time, and are therefore highly exposed to each client.
“Their clients can quite often just withhold money on a pure technicality. The amount of cash they need for business operations hasn’t changed but their expected cash inflows can suddenly dry up. It is a difficult sector from that point of view.”
It’s therefore often a good idea for the construction company to have lending facilities on standby as contingency to cope with any issues that may materialize. Approaching the bank, at short notice and with an urgent need for funds is rarely an easy of successful conversation.
If your a construction business needing some help/advice on getting external funding, reach out to us today on [email protected] and one of the team will be able to book in a call with one of our dedicated Regional Directors to discuss more.
To accelerate the growth of your company and organic growth doesn’t appeal, consider merging with or acquiring another company. In this article, we’ll go through the about your business tips for growth through acquisition.
Such a move can help business owners like you to grow your top line and profitability, says the FD Centre’s FD East of England North, Lynda Connon.
A successful merger or acquisition can also give your company access to your target company’s technology, skillsets, markets, and target customers.
If the target company is in a different industry, the merger or acquisition can help to diversify and mitigate risk.
Considering a diversification strategy like this is valuable if there is any doubt about your company’s prospects for long-term profitability.
The standard form of acquisition is when one company (the acquiring company) buys another company.
It does this by either buying all the shares in the acquired company or by purchasing its assets. The shell company is then liquidated.
Types of Mergers
Likewise, there are several types of mergers, including
Horizontal merger (in which you merge with a company in your industry)
Vertical merger (in which your target company is at a different production stage or place in the value chain)
Product-extension merger (in which your target company sells different but related products in the same market)
Market-extension merger (in which your target company sells the same products as your own but in a separate market)
Conglomerate merger (in which your target company is in a different industry and has different products or services).
Growth through acquisition has many benefits, including the following:
To achieve a lower cost of capital
To improve your company’s performance and boost growth
To achieve higher revenues
To reduce expenses
To achieve economies of scale
To diversify your product or service offering in your existing markets or move into new markets
To increase market share and positioning
To achieve tax benefits
To diversify risk
To make a strategic realignment or change in technology
To obtain new technology, more efficient production, or patents, and licenses.
Dangers of mergers and acquisitions
As beneficial as mergers and acquisitions (M&As) may be, particularly in terms of achieving fast revenue growth, they are not for the faint-hearted.
The merger or acquisition process can take anywhere from a few months to a few years. Depending on such factors as whether the target company is a public or private entity, the negotiations, legislation, and the involvement of financial institutions and other stakeholders.
“The actual transaction can be done very quickly if you’ve identified your target and if all parties are keen to go ahead and legals can be put in place,” says Connon.
“But typically, a merger or an acquisition takes several months.”
But you also need to factor in the time that will be involved in the identification of suitable target companies as well as the post-acquisition integration.
The post-acquisition integration can take anywhere from six to 12 months, she explains.
“So the actual transaction itself can be done very, very quickly. It’s the process of identifying the target and making sure it’s something that will work for your organisation as a combined entity and making it happen after you’ve done the deal.”
It’s estimated that of all M&As, 70% to 90% fail for various reasons.
Many failures are due to a lack of strategic planning and incomplete due diligence, according to Connon.
They also fail if there is a poor strategic fit between the two companies, a poorly managed integration or an overly optimistic projection of the target company.
The result is a failed growth strategy and a large number of lost opportunities.
Successful merger or acquisition strategy
So, how can you be sure of being in the 10% to 30% who achieve successful acquisitions or mergers?
Before even starting your search for target companies, it’s essential that you clarify your acquisition strategy and reason for merging with or acquiring a company, says Connon.
Most successful acquisitions happen when companies have identified and understood their own acquisition strategy, says Connon.
They have clarified the company’s direction over the next two to five years, understand the market challenges for their core business, and know the gaps in their own portfolios and skillsets.
“They also take time to identify potential targets and to subtly review and understand the strengths and weaknesses of each of those target companies,” she adds.
“Post-acquisition, the ones that tend to fail are the ones where acquiring companies haven’t taken the time to really understand their own strategy or market challenges and what they want from an acquisition. Often, it’s been done for emotional reasons rather than good, sound business reasons. Those companies will typically fail.”
To develop your acquisition strategy, you’ll need to be clear about what you hope to achieve. What is your business model? What do you want to do? Do you want to grow income, to improve profitability, to enhance cash flow? Where are the market challenges in your sector and can you address them all? If you can’t, do you need to make an acquisition? Do you need to merge?
If you conclude that a merger or acquisition is desirable and will be beneficial in the long-term, then you need to develop an “identikit” of what that potential company looks like.
Every company you consider should be evaluated against the metrics you’ve decided upon.
“Don’t get distracted by personal judgement. If you stick to the metrics you’re looking for, you’re more likely to make a successful acquisition,” she adds.
You and your team of M&A experts need to carry out due diligence and investigate the target company’s business, people (particularly crucial personnel), records and key documents.
The point of the due diligence process is to uncover any inherent risks in the target business. To question the value placed on the investment or acquisition price and to identify critical issues.
Your M&A team should ask questions and request documentation about the following areas:
Corporate information, including the company structure, shareholders or option holders and directors
Business and assets, including your business plan, assets and contracts with both customers and suppliers
Finance including details of all company borrowings and loan agreements, cash flow statement, business reports, plus all tax liabilities and VAT returns
Human Resources including details of contracts for directors and employees
IP and IT, including information about IPs, owned or used by the target company and the software and equipment that are used
Pension plans that are in place for directors and employees
Litigation including details of any disputes or legal proceedings the company is involved with now or in the future along with licenses or regulatory agreements it has
Property including information of real estate that’s owned or leased by the target business
Insurance policy details along with recent or future claims
Health and safety policies that are in place
Data protection, including information about how sensitive data is stored and protected and reassurance the target company is compliant with data protection laws
Post-acquisition or merger
You should use your original strategy to measure its success, whether that’s income growth of 25% or improved profits of 2%.
“That would be the target by which you’d measure your combined entity. You’d go back to those numbers and see what have you’ve achieved compared with what you set out to achieve.”
Make sure to Contact us now so we can book in a consultation meeting with one of our dedicated Regional Directors. This is to show how we can help you to know more about growth through acquisition.
If history has taught us anything, it’s that the only constant in life is change.
Over the course of the last century alone there have been a litany of challenges and numerous disasters, all of which have one thing in common – they’ve all passed.
Some months from now – it’s impossible to predict the true timeline – the current situation we face with Covid-19 will too have passed. It will have left in its wake a trail of debris and destruction which we ought not minimise, but it will pass.
As the great German writer Goethe once said: “Fresh activity is the only means of overcoming adversity.” It’s a wonderful way to focus the mind on proactive, practical activity and look forward. To deal with things that you can influence and change rather than those you can’t.
As Finance Directors part of our role is to use our knowledge of the past and translate it into actions that bring about a better future.
With 750 of us in the UK and abroad, many of us spanning 3 or even decades of service to SMEs, we have weathered many storms. We’ve also come out the other side.
And we have learned from those experiences that there are certain actions we must take quickly if we want to overcome adversity and put ourselves in a stronger position for when the storm abates. In the midst of the storm it can be difficult to make sense of what is happening. This is precisely the time to slow down for a moment, as hard as it may seem, and make some proactive decisions.
To address the negative, we can take it as read that the speed at which many industries will contract over the coming weeks will increase. Primary industries such as aviation, travel and tourism, events and conferencing, restaurants and pubs, will suffer devastating blows as will the supply chains they support. The ripple effect will affect everyone, in some way or other. These events are already in train.
While all that happens, as SME owners, we have to do whatever we need to do in order to weather the storm and come out stronger the other side.
And you don’t have to face that challenge alone. There’s a lot the government and banks are doing to help small to medium sized businesses get through the challenges of the coming weeks and we’re also here to help you navigate the options and put you in the strongest possible position when some sense of normality is restored.
Below are some key considerations, risks, opportunities and resources. If you would like us to help you navigate the options, we are offering a courtesy 1:1 Scenario Planning Call to help you get clarity around what you should be doing now to put you in the strongest possible position.
Protect the downside
Cash is king. What cash buffer do you have in place, what funds can be drawn down from available credit facilities if required? From March 11th the government is pledging £30bn. This covers welfare and business support, sick-pay changes and local assistance. In relation to business, the support includes:
£2bn of sick-pay rebates for up to 2m small businesses with fewer than 250 employees
£1bn of lending via a government-backed loan scheme, with government backing 80% of losses on bank lending
The abolition of business rates for this year for retailers (a tax cut worth more than £1bn)
The provision for any company eligible for small business rates relief to be allowed a £3,000 cash grant, estimated to be a £2bn injection for 700,000 small businesses
In addition, here are just a few key resources you may be able to draw upon from the major banks:
Barclays has a range of options for business customers, including 12-month capital repayment holidays on existing loans over £25,000 and increasing overdraft facilities
RBS has said it is offering more flexibility over loans to businesses, suggesting repayments may be deferred by up to three months for those in financial difficulty
NatWest has pledged £5bn Working Capital Support for SMEs during the Coronavirus outbreak
The Lloyds Banking Group said it would be open to requests from small businesses for overdraft extensions and other support
If you are predicting a reduced demand what will be the impact on sales and cash?
What costs can be cut or deferred? Is there flexibility in the cost base that could partially offset a downturn in revenues?
Are there major capital expenditures that could be postponed?
Over what time period might you expect revenues to be reduced?
What impact might you expect in regard to late payments from your existing customers?
Are you likely to be impacted by a break in supply of inputs/services from other businesses struggling with the virus?
How much contingency are you holding if supplies of inputs stopped/became erratic?
Are there alternative sources of supply if a supplier fails?
What is the likely impact on workforce – do you have a business continuity plan, can workers productively work from home/remotely?
Could you look at taking measures now to reduce the risk to your workforce; e.g. more virtual meetings rather than asking staff to travel?
Are you operating in an area which could be impacted by “lock down” measures e.g. city centre, does the workforce travel largely by public transport (impact if closed/restricted), would the travel patterns of the workforce mean it would be necessary, for staff safety, to suspend travel to the head office/main site.
Potential impact on sales volumes – e.g. what is your level of exposure to consumer demand, are you B2B or B2C, are your corporate customers likely to be significantly impacted (airlines, cinemas, hotels, restaurants, attractions, events, etc.
Any delivery issues for goods/services?
What are the contractual implications of failure to service customers (do they have a force majeure protection in contracts?)
Does the client have contracts which enable clients to claim force majeure and cancel commitments without penalty – worst case what might this mean in terms of the liquidity scenario planning.
Who should you be contacting now – suppliers to see what contingency plans they have, customers to reassure, other stakeholders?
If someone has an issue, do they have the means to communicate with you?
Can you post messages on your website remotely if required as a means of keeping customers, suppliers notified?
What is your policy on sick pay if staff have to self-isolate (the Government have announced the availability of SSP from day 1 of self-isolation but does your policy mirror that?)
Are there contingent measures that can be put in place to bring in temporary staff if necessary?
Any business-critical single points of failure?
Can you switch your office phones to an alternative line?
What insurance arrangements do you have in place?
Prepare for the upside
All of the suggestions mentioned above constitute the day to day role of an FD. These are things that companies ought to be doing as a matter of course, but of course, many do not.
The advantage of going through this process now is that it will enable you to build a better, stronger, more resilient business for the future. Whether Covid-19 or the next major recession, or some other unforeseen event, knowing that you have done all that you can to prepare your business will give you greater confidence in the future.
The future of work is all about remote working, flexibility, greater specialisation and outsourcing. The Coronavirus will increase the pace with which we transition to a new global model.
We encourage you to be cautious and use this time to spark ‘fresh activity’ and build a stronger, leaner business for the future.
We are here to help and are offering 1:1 Scenario Planning Consultations to help you make the right decisions to get you through the coming weeks and prepare you better for when the current madness subsides.
If you want your business to achieve high ambitious turnover growth of at least 20% year on year, you need a business scaling strategy that incorporates a strong vision and a solid business plan.
Helping your small business to grow, to achieve a sustained annual 20% turnover growth and scale up, will involve careful planning.
It will also most likely involve taking calculated risks.
You need to think about what you want to achieve. You won’t find that easy unless you know your target market and your customers thoroughly, have products and services they’re keen to buy and be aware of the expenses you’re likely to face.
That’s the case for all business models, including those for manufacturers, retailers (whether they’re brick and mortar, brick and click or eCommerce), distributors, and franchises.
Achieve The Revenue Growth
You also need to have a clear understanding of what’s achievable both in the short and long-term.
At some point, you’re likely to need to invest in the company to achieve the revenue growth and scale your business the way you want.
That might be to cover the cost of hiring of more team members, the training of your existing employees and their retention, or the development of new product lines or services to boost sales.
Like some companies, you might need additional funding to be able to hire in external experts such as the FD Centre’s part-time FDs to fill the personnel gaps within the company as it scales up.
You will also have to decide how you will fund the additional resources you need to sustain your growth.
Companies that enjoy strong growth are prepared to employ the right people and to raise the money they need.
Sometimes they have even personally guaranteed the loans they’ve taken out on the company’s behalf.
They’re taking well planned, well considered risks.
The more risk-averse often shy away from offering personal guarantees on loans or embarking on mergers and acquisitions that would help to fuel their rapid growth.
Invariably however you do need to borrow money to achieve growth.
Managing growth successfully
To manage your company’s growth, it’s critical that you refer often to your business plan and keep an eye on the business’ key metrics, benchmarks and timelines.
You need to make sure that people have actionable activities; things that they can do and which can be measured.
As well as having repeatable processes and measuring your progress on a day-to-day basis, it’s crucial to be able and willing to adapt and be flexible if things change.
Besides monitoring KPIs for turnover, gross profit percentage and salaries, it’s also important to establish KPIs for your profit per product and customer profitability.
You need to know whether you’re doing more business with each of your customers than you were doing the previous year, for example. That’s more important than focusing on going out and winning new customers.
Equally important is being aware of your balance sheet.
Other important KPIs are those that relate to your customer conversion rates, your sales profitability, and your working capital
Pros and cons of inorganic growth
One of the fastest ways to scale your business is to merge with or acquire another business in your market. Or, in the case of retail or hotel/restaurant companies, open new branches in different locations. It could also involve forming a joint venture partnership.
You need to ensure there are alignment and support for the from all the company’s stakeholders. Including customers, senior management, non-executive directors, potential joint venture or merger partners. And your banks and other finance institutions, your accountants, and your immediate team.
The benefits of choosing the right target company for your merger or acquisition can mean your market share and assets increase.
Your new staff may have more expertise and skills than your existing employees.
The merger or acquisition may make it easier to obtain capital if or when you need it.
But this kind of inorganic growth can be problematic.
The purchase price for the acquisition can be prohibitive while restructuring charges can increase expenses.
It also takes time to benefit from the knowledge or technology your company has acquired through the merger or acquisition.
You may find you need to recruit more managers to cope with the increased workforce.
The business may move in a direction you never anticipated. Or the new company may grow too quickly which puts it at greater risk.
Often, the combination of organic and inorganic growth gives you the best outcome. Your company can diversify its revenue base without having to rely purely on current operations to grow your market share.
Three tips to scale your business
Be open minded about taking on investment. Scaling your business will be hard work and you need to find a way to do it without running out of cash.
Conduct market research to ensure people want to buy what you’re offering. It’s got to interest and excite them so much they’re willing to hand over cash for it.
Reward your employees and make sure they understand and are engaged with your vision for the business. You’ve got to bring them on the journey.
Contact us now so we can book in a consultation meeting with one of our dedicated Regional Directors, to show how we can help you to have the best business scaling strategy.
If you want to boost your business growth rate but consider mergers and acquisitions too costly and risky, then consider using a safer, albeit slower organic growth strategy.
Provided it’s profitable, growth can help your company to attract top-performing talent and investors. It can also generate financial resources that will fund expansion.
A business that grows organically uses its internal resources, without having to borrow or get involved in takeovers, mergers or acquisitions, to expand operations.
By comparison, those that rely on inorganic growth use external funding or growth opportunities such as mergers and acquisitions, to expand.
Although internal growth is slower, it can result in increased output, greater efficiency and production speed, higher revenue growth and better cash flow, according to the FD Centre’s multi-channel retail specialist and part-time FD, Sanjay Patel.
For those reasons, organic growth is growth that’s critical for the success of any company, not just those in the retail sector, he says.
It’s also why organic growth is important to existing and potential investors because they want to see the company is capable of increasing output and earning more than it did in the previous year.
Growing organically is what many high growth companies do, according to aglobal McKinsey report. The study found that organic growth is key to companies’ futures.
Top performers invest in existing high-growth activities by using funds from a variety of sources; create new products, services or successful business models; or perform better by continually optimizing their core commercial capabilities such as marketing, sales and pricing, the report said.
Interestingly, the top growth companies in the study used a combination of all three strategies, it revealed.
The top performers also tend to be better at developing the right capabilities to support their chosen growth strategies, such as using advanced analytics and digital customer experience, it explained.
Although the study focused primarily on publicly listed companies in the US and Europe, its conclusions are just as crucial to both small and large privately owned companies.
Of course, scale-up companies might not have the resources that top growth firms do that enable them to introduce more than one strategy at a time.
But if you want your company to enjoy the benefits of organic growth, then you need to use at least one of the three main organic growth strategies.
It’s also worth considering using a combination of organic and inorganic growth.
Three organic growth strategies
Continuously optimize your commercial activities (those that involve how your products or services are priced, marketed and sold)
Reallocate funds from unproductive costs or low-growth sectorsof the business into activities such as high-earning products or services that already perform well and which will boost earnings and growth
Create and develop new products or services and develop new business models.
It’s crucial you use data analytics to determine which growth initiative is having the most impact. Such analytics should make it easy to see which strategy is the most cost effective.
Embedding analytics into the company’s most critical commercial processes will make it easier to get useful insights. The faster you can get access to such insights, the easier it will be for leaders in your organisation to make important strategic decisions.
Why knowing your target market is critical
Thorough knowledge of your target market is essential for long-term organic growth. Without it, it’s unlikely you’ll be able to increase your market share.
If you know how your target customers or clients think, behave, and make decisions, you’ll know in which products and services you need to invest most of your funds.
Your research should make it easier to know what new product lines or services will appeal to your target market.
It will also allow you to tailor your marketing efforts and the pricing of your products or services towards your ideal customers. They’re the ones who buy the most products most frequently.
Social media marketing
For example, the research could reveal that most of your customers come to your online retail shop via recommendations they find on social media. These might include social networks such as Facebook, Twitter and Instagram, blogs, vlogs, forums and consumer review sites.
This insight could mean you decide to focus most of your marketing efforts on getting more organic sales by reaching out to more social media influencers and producing SEO (search engine optimized) content for other people’s blogs, vlogs as well as your own blog and YouTube channel.
The deeper your understanding of your target market and ideal customers, the easier it should be to identify potential markets, invest in product line extension and create future revenue streams.
While becoming more effective at generating sales and annual revenue should result in better top-line figures, it’s also important for your company to become more efficient in spending and managing your operating costs.
Organisations with a fixed mindset tend to reward ‘genius’ type employees, the ‘star’ performers, and overlook so-called ‘under performers.’ Such organisations by their very nature hinder rather than encourage growth.
A growth mindset is based on the belief that everyone can increase their ability, talent, and intelligence, given the right opportunities to learn and be curious.
Organisations that share a growth mindset are more adaptive and flexible and, therefore more agile – the very qualities that a company needs to be able to take advantage of new growth opportunities.
If you want to grow your business, you’ll need to use key business expansion strategies, preferably one that involves the least amount of risk and effort.
Depending on the demand for your products and services, your competition, the size of your market and market conditions, you could use one of the following growth strategies to expand your existing business:
Increase your market penetration by selling more of your products or services to your existing customers.
Expand your market by moving into new areas, territories or countries.
Increase the range of products or services you offer to new and existing customers.
Diversify your existing products or services to attract different customers.
Use new channels to sell your products or services such as through an online shop, direct mail catalogues, joint venture partners or affiliate partners.
Acquire or merge with another company (to increase market penetration, market expansion, product diversification, and market share). You could buy or merge with a competitor, a supplier or a distributor to achieve your growth objectives.
Most of these can be achieved through organic business growth. The exception is the acquisition of or merger with another company. Merging or acquiring other companies can be riskier than relying on organic growth but if successful can help your company to achieve rapid growth.
Too many small business owners create a business plan to get start-up funding then never refer to it again. By comparison, the owners of growing, thriving companies develop strategies to achieve the objectives they’ve detailed in their business plan, according to Paul Vennard, Regional Director of the FD Centre.
For instance, they can see how close they are to achieve a percentage increase in profit margins.
They can also use the business plan to develop systems and processes that will help make the company more efficient and more likely to survive and achieve its long term objectives.
Lack of skilled people
To expand your business you need people with the right skills and knowledge to deliver your products and services, says Vennard.
But a 2018 global talent shortage survey by the Manpower Group showed that 45% of companies struggle to find people with the right skills to fill open positions. Those unfulfilled roles pose a threat to a company’s productivity, efficiency, and future growth.
Lack of expert advice
Businesses can fail to achieve their growth projections simply because their owners and management team didn’t have access to people with expertise. Quite often, business owners are not even aware they can get help from people who have experience in growing companies. For instance, the FD Centre offers part-time Finance Directors who have all had big business experience. They can guide SME owners and help them overcome obstacles to growth.
Inadequate risk management
Poor risk management, that is a failure to identify, assess and control the internal and external threats to the company’s capital and earnings, can result in workplace accidents, failed projects, computer security breaches, loss of contracts, higher costs, legal action and, in the very worst cases, closure.
Poor financial management
Quite often the CEOs of small companies lack sophisticated financial knowledge. Poor financial management can lead to inadequate controls, high overheads, and overly optimistic financial forecasts. Some business owners can be unaware of the impact that rapid growth can have on cash flow and come unstuck.
Little market research and poor marketing efforts
Inadequate market research can have disastrous consequences for any company. Your company could expend time and energy trying to sell to an audience that is not interested or can’t afford to buy your products or services, for instance.
Similarly, your company could miss opportunities such as joint ventures or expansion possibilities. It could also overlook threats such as new market entrants or changing consumer tastes.
You need to have realistic expectations of your marketing’s reach and likely sales conversion ratio.
Even when your market research is adequate, your company still needs strong marketing to ensure your target audience is aware of your products and services. You need to have the capacity to send the right message to the right people at the right time.
Lack of funding
Your company’s growth might plateau due to a lack of growth funding. This is particularly the case if your company is past the start-up phase, and if you don’t have further assets to borrow against.
If you want to grow your business successfully, then you need to get the basics right. That’s things like your mindset, your long-term objectives, strategies, and the team you’ll employ to help you achieve your goals. In this article, we’ll delve into the tips on how to grow a company successfully.
To build your business, you also need to develop a system to attract and retain high-quality customers.
For that to happen, you must understand your customers’ needs and pain points. What burning needs do they have? What keeps them from falling asleep at night?
Your customers must believe that your products or services will meet their needs or overcome their challenges.
Have the right mindset
One of the things that determine a business’ success is the business owner’s thinking. If the business owner has a clear vision of how the company should develop, it is highly likely that the company will also go in the same direction.
Set your objectives and develop growth strategies
Your goals for your business will provide an overall framework for everyone to follow. The strategies you’ll use to achieve those objectives should serve as a roadmap. It will help you to build a structure and bring a focus to decision making.
Once you’ve translated your goals into strategies, you can develop systems and processes that will help with the smooth running of the business.
Many businesses fail in the execution of their strategy. Don’t be afraid. It’s better to execute a mediocre plan correctly than it is to execute a perfect plan poorly.
Hire top-performing talent
A successful business depends on top-performing talent. That is hard-working, determined people whose goals are aligned with the organisation’s goals.
The more your organisation is seen to trust employees with responsibility and to invest in their career development, the more likely it is to attract and retain top performers.
Many business owners make the mistake of focusing their entire sales and marketing efforts and budget on attracting new customers. They often overlook the needs of their existing customers.
They forget that it’s cheaper and takes less effort to get more orders (and bigger orders) from existing customers than it does to convert leads into new customers.
Ignoring your existing customers is a huge mistake. People don’t like to feel as if businesses take them for granted once they’ve placed an order. If they feel neglected, they’re likely to move to another company.
They are also highly likely to take to social media to vent their frustrations if your business doesn’t provide great customer service. This could mean bad word-of-mouth advertising on a massive scale.
People expect excellent customer service in every interaction they have with your company whether that’s face-to-face, by letter, email, phone call, text, or via the website.
It doesn’t matter if you run a small business or a large corporation. Your company must deliver an exceptional customer service experience.