Having overcome the risks and challenges of starting a new business, and survived the crucial first couple of years, the owner’s attention inevitably turns to growth, winning new business, exploring new markets and expanding their customer base. And with this next phase comes a fresh set of challenges and risks.
In striving to achieve sustainable, profitable growth, it’s easy for business owners to take their eye off the business basics, which can leave them undermining and effectively killing their hard won growth. In the words of the Stanford University online course, they need to learn the art of “scaling up without screwing up”.
Stay on top of cash flow management
The business cliche “cash is king”, still rings true, and whether it is the result of under trading or over trading, getting the cash position wrong will not only destroy any hope of growth, but could also be the downfall of a small business.
SMEs that fall prey to cash flow problems often say they find it difficult to monitor and don’t know how to rectify the situation when things are going wrong. Jonathan Richards, CEO of HR software company breatheHR, says: “It can be frightening to see how bad things are, so some business owners choose to stick their head in the sand and hope it will go away, but it doesn’t. However, if you know the situation then you can plan action, for example, modifying when you pay suppliers, chasing or encouraging customers to pay early, and cutting back on expenditure.
“I used this to get my first business through the recession and the cash flow position eventually made it clear that something major had to change. We weren’t about to die but it gave me the knowledge and confidence to change before it became too late.”
Chase customer payments religiously
Getting paid on time is essential to keeping a business running, yet late payments still pose one of the biggest threats to small businesses. Many resort to borrowing from friends and family, and taking on overdrafts and loans in order to survive, however, this doesn’t mean that late payments can’t be tackled.
Rich Preece, vice president and managing director Europe at accounting software firm Intuit says: “It sounds obvious, but it is vital to have a complete overview of the business finances at any one time. This will help you keep on top of all incomings and outgoings and provide insight on what money is available to use. This also helps prepare for when payments are due, and identifies consistent ‘late-payers’. Issuing interest penalties to these businesses, or even discounts for early payments, will encourage funds to come in on time.”
Avoiding mistakes on invoices, such as billing the wrong group entity, incorrect purchase order numbers, or missing line items, will also help prevent delays. These errors may not be spotted until just before payment becomes due, delaying it until the next payables cycle, and leaving a dent in your cash flow.
Monitor margin erosion as operating costs increase
A mistake that many small business owners make is to focus on measuring turnover instead of margin. This can fool them into thinking they are doing well, or even growing, as their turnover increases. However, as the business and its revenue streams grow, so too do the operating costs, and if these are increasing at a higher rate, the business is effectively going backwards.
A key area of cost to focus on is staff payment. Shaun Thomson, CEO of growth training company Sandler Training UK, says: “If you employ salespeople and pay them a commission, you must make sure the commission is on profit – retained margin – and not turnover. This will also help to deter salespeople from offering discounts to close sales and hit targets. Business owners should know their monthly margin target to break even.”
Business owners should be constantly looking to sustain those margins by taking advantage of quantity discounts for materials, looking for more economical ways to manage overheads and considering necessary price point increases.
Grow your business and your people
Business growth isn’t just about revenue or profit. Investing in the training and development of staff is key to growth of their understanding of the business and their engagement with it, both of which are key to boosting productivity.
As Tony Nicholls, managing consultant at White Stone points out, effective staff training and development is actually more about developing a learning culture than it is about carving out time and taking staff away from the coalface.
He says: “Research has shown that around 70% of learning takes place on the job, 20% from coaching or mentoring, and only 10% from formal training. Using this rule of thumb, businesses can start to promote self-learning, job swaps, job shadowing, coaching and mentoring arrangements. Some classroom training may be appropriate, for example in coaching skills or appraisals, but much of what managers need can be learned from observing others and sharing best practice amongst themselves. With the internet and social media, much of the theory and suggested best practice can be found and shared online, between staff members.”
Document business processes
Sustainable repeatable processes should form the basis of every business, creating a solid footing for growth, and ensuring that as new employees come on board they can follow these processes with confidence.
Sammy Blindell, founder of branding consultancy How To Build A Brand, says: “Every successful brand has gone through significant growth, and one of the things that supported that growth was a brand culture that included procedural guidelines for every process, from initial consumer contact to client retention.
“Create a brand strategy that outlines all of the procedures and share it with team members regularly, discuss it, refer to it often, and use it to train new recruits. When everyone involved subscribes to the brand strategy, your business can run like a well-oiled machine, no matter what the age or condition of each individual cog.”
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