You didn’t start a business to stand still – you started it to grow it. And whether that growth is about increasing market share, improving profitability, or building your team – or indeed all of these – the reality is that you’re going to encounter some challenges that will trigger growing pains along the way.
In this article, our team of outsourced Finance Directors (FDs) and other Finance professionals highlight the five growth phases your business is likely to experience, and how they have helped many businesses like yours deal with the obstacles each typically produces.
If your business idea is worth developing, the next step is to put together a business plan.
A good business plan is not a set-in-stone document; rather, it’s a constantly reviewed set of plans that ensures the business continues to fulfil its objectives, and identifies both risks and forthcoming opportunities for strategic growth.
Review, identify, revisit, set new milestones – this is how the ongoing planning process must work, and it’s worth bearing in mind that business plans are also a vital tool for convincing outside investors and funders to part with their cash if you need it to help to move to the next stage.
In this stage, we’ve found that entrepreneurs and new business leaders often need help from us to address the following questions:
- Does this concept/product/idea fill a need in the market?
- Will it be acceptable in the market in the form(s) in which we propose to deliver it?
- How do I establish a business structure to deliver on the plan?
- Does the idea need outside equity, grants or other money to get it off the ground, and if so where can this be found?
- Will the idea yield profit?
Business at this stage is extremely risky and stressful, and many entrepreneurs are tempted to pull out. Commonly, this is because the actual budget may exceed what was originally allocated, but this can be countered by clear projections about what the business will realistically need to operate, where additional cash might come from, and how progress and performance are measured.
Consequently, we find ourselves advising businesses in this stage on matters such as:
- Raising money/seeking investments (there are often sources of funding the business hasn’t considered)
- Fully identifying all relevant costs
- Hiring staff
- Managing expectations around sales and cash reserves, based on reliable cashflow forecasts
- Establishing customer base and market presence
- Managing and monitoring accounts to flag issues and opportunities early on
Beginning to Grow Stage
Companies that reach the growth stage have overcome the intense start-up stage and are now typically generating revenue and growing their customer base. While profits will likely have increased, however, this phase can still be precarious.
Why? Because at this point you are now engaging with competitors, who are a potential barrier to your growth plans.
Also, whilst everything is up and running, it’s often the case in this phase that it’s not running particularly efficiently – and that is generating hidden costs that often consume your surplus cash, and putting the brakes on productivity, which slows growth down.
This is why we advise businesses in the growth stage to focus first and foremost on fine-tuning their business model by identifying ways to improve operational efficiencies and improve profitability, rather than worrying too much about sales and marketing models.
Challenges we help businesses to address at this stage include:
- How to deal more efficiently with the additional work created by increasing customers and revenues
- Streamlining operations through better systems, integration, and automation
- Generating relevant, timely and accurate management information
- Understanding the competition and how to counter it
- Optimising profit-volume, to achieve greater profitability per sale
Scaling Up Stage
Businesses in the scale up stage are faced with the need to gain a bigger market share as well as looking for ways to develop new revenues and profit. This stage calls for a streamlined plan and research before moving into new markets, and the challenges and opportunities we typically help businesses to deal with at this stage include:
- Increasing market competition – understanding how to address the greatest threats
- Acquiring competitors, to accelerate growth
- Diversification of the operating model to accommodate acquired assets (products and stock, versus services, for example)
- Expansion of the existing business entity, including overseas considerations, and any changes to legal status or trading category this may require
- Preparation for an exit event, such as selling the business or your stake in it
When a company reaches the maturity stage, the idea that was once just a thought is now proven and productive, with stable profits driven by the strategies employed during the four previous stages.
But you can’t rest on your laurels just yet, as this stage often relies on additional sources of finance to help sustain the booming performance. Indeed, get this wrong, and your business may still grow, but in a way that is sluggish compared to its potential.
This means you may need to go back to the drawing board to see how to get your business back into the expansion stage, or – alternatively – think of an exit strategy.
For these reasons, we advise businesses in this stage on a number of recurring challenges, including:
- Understanding how long they can maintain and manage negative cash flow in the absence of additional funding
- Ensuring data correctly shows where the business is making money and what the key performance metrics are
- Expanding the business through additional and alternative funding methods – debt, equity, grants, etc.
- Planning and executing an exit strategy that delivers maximum sale value to the business owner
Growth advice that goes further than Finance
As you can see from what you’ve read above, at EFM we don’t see Finance as a back-office function.
In our view, Finance should help business owners grow their companies, navigate challenges that go beyond the merely financial, and plan a higher quality of life after exit.
And we believe this service should be bespoke, scalable, and available on a pay-for-what-you-use basis, based on the requirements of the phase your business is in. No one-size-fits-all plans, no lock-ins, no hidden extras, no full-time salary bills.
Our team are here to support you and provide the best solutions to help your business achieve sustainable growth – no matter where in the five stages it currently finds itself.
Get in touch today via Clientcare@efm.uk.com