Small Businesses Wanting To Grow

If you have set ambitious growth objectives for your company (for example, to double in size in the next three years) then just like the start-ups and ambitious entrepreneurs, this growth will put strains on your business that need to be proactively managed.

There are really only four ways to grow:

• Sell more current products to existing customers.
  
• Sell current products to new customers.
  
• Sell new products to existing customers.
  
• Sell new products to new customers.
  

Each of these has its own challenges, risks and opportunities.

In many ways selling more existing products to existing customers is the safest option because you already have established relationships and proven capabilities.

But unless the market itself is growing quickly, it is likely to involve taking business from competitors and without careful thought, profits and prices can be driven down sharply as competitors react to what they see as your aggressive marketing.

New products and/or new customers means moving away from the established business that your managers know well and we would recommend a strategic planning approach as the first stage in the business development process.

It’s essential to answer questions that include:
 

• What do customers really want and need and what are they prepared to pay for? 
  
• What do they consider when making their purchasing decisions?
   
• Why should customers buy these products or services rather than a competitors offering.
   
• What’s the best way to promote the new products or reach the new customers?
   
• How quickly will the new business flow and most importantly, how profitable do you expect it to be?
  

Regardless of the source of the extra business, growth is likely to increase strains on three essential areas:

1. Growth needs to be financed often with cash requirements running well ahead of profits and cash generated from any new income source. Perhaps new equipment needs to be bought, perhaps stock needs to be purchased in significant quantities and debtors will need to be financed for all except cash based businesses.

2. Systems and processes will be stretched. More work usually means more people and these need to be recruited, trained and managed. Tasks that your established team already perform need to be shared out but customer service must remain consistently high if your growth objectives are not to be undermined.

3. Profit doesn’t always automatically follow on from an increase in turnover. All these actions to stimulate and satisfy growth create extra costs and the business model changes. The old reliable performance indicators may no longer be a consistent guide.

In these situations we recommend a “part time Finance Director” approach. See our register of experienced senior financial managers who work around the UK.

We don’t like the phrase but it seems to have entered common usage and is generally understood.

In a larger company, often the only two people with the broad view of the way the company works are the Managing Director and the Finance Director.

In such companies the Finance Director is usually responsible for

1. Establishing management control systems in the company that provide a comprehensive view of performance and the related issues.
   
2. Encouraging the development of improvement actions plans and providing support, advice and encouragement to operations and sales management,
   
3. Ensuring that the company has the necessary cash resources available or making sure that the company optimises its use of cash if funds are limited,
   
4. Coordinating and facilitating the development of the business strategy.
   

These needs don’t suddenly appear when the business becomes big but in smaller businesses they are often not handled well.

The result is that the smaller businesses do not develop as they should. This is OK when the company is not looking to grow but can cause major problems if the company tries to expand without the appropriate planning and control systems in place.

That’s why the option of a “part time Finance Director” (also known as a Virtual or On-call Finance Director) is becoming an increasingly attractive option for the smaller business. Companies know that qualified accountants are expensive so it makes sense to only buy the time that can be economically justified.

The well known Pareto principle that 80% of results comes from 20% of the effort applies in many situations and it also applies to financial management.

Of course it may not be 80/20 but 70/30 but the basic principle remains true. You can gain most of the advantage of having an experienced and highly qualified accountant/financial manager in your business through a part time arrangement.

It’s Parkinson’s Law that states that work expands to fill the time available because people make work for each other.

At this stage it’s important to clarify the difference between accounting and financial management.

Accounting is mainly concerned with recording past transactions and preparing reports that comply with the accounting guidelines and regulations. This is the book-keeping, number-crunching, bean-counting side of the profession that Monty Python seem think is boring.

Financial management is focused on the financial results and resources in the future. This is more difficult than recording past transactions since it requires imagination, an in-depth understanding of the economic model of your business, judgement and the ability to influence decisions.

But it’s on the financial management side that the part time or virtual Finance Director earns his/her money because it’s these activities that create value for the business.

The accounting stage sets the basis for the financial management stage. Without consistent record keeping the company is unaware of how it is performing and can’t see the importance of issues that need to be corrected. But the accounting stage is not where the real extra value is.

The objective is to push on from the past, to learn from the good, correct the bad and to make progress. Unfortunately many accountants cannot move into the future and have little influence on the business so even if you already have a “steady Eddie” accountant, you may want or need extra financial support.

Are you making any of these common mistakes that could be costing you a lot of money? - business owners, marketing, sales, finance, employees & teamwork.

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