Growth options – not all growth is equal

Most small companies have plans to grow their business and increase sales and profits. However, there are several growth options that could be followed. The method a company uses to expand its business is largely driven by its financial situation, the competition and even government regulation. Some common growth strategies in business include market penetration, market expansion, product expansion, diversification and acquisition.

Don’t make the mistake of attempting to grow too soon but wait until you have a period of successful trading behind you to provide evidence that your business model works.

With this in mind I have focussed my comments on the growth options that are best suited to small established firms.

Growth options

Most businesses opt for gradual, organic growth that is more manageable and involves less risk. There are a number of well-established strategies:

Market Expansion

Are there new markets into which you can sell your current products? This is often best considered when current sales have plateaued, it involves little or no product development resources.

At this point, you will have tested one or more products and found out how they performed. At least one will have been an existing product which has already performed in other markets. You can use the feedback and data you’ve gained from successful markets to build messaging in new ones.

Any market expansion strategy should include a marketing component. This should focus on engaging your new customers. It should reflect both the channels through which you will engage with customers. It should also include the value proposition you plan to deliver to them.

Product Expansion

Within your existing customer base or market are there additional products you could develop and sell?

You may plan to invest in new product development as part of your growth options. This opens new revenue opportunities that can drive businesses to success. Your goal is to develop your new product from concept to market introduction. First, identify a need in your target market that your product will fulfil.

When small companies employ a product expansion strategy, also known as product development, they continue selling within the existing market. A product expansion growth strategy often works well when technology starts to change. You may also be forced to add new products as older ones become outmoded.

From tiny acorns…

Growth involves risk and commitment; but, well-managed, it should be achievable for most businesses. It will not necessarily happen fast or enable you to retire next year; but every large business started somewhere.

 

 

 

The white-knuckle ride of controlling rapid growth

When a small business goes through a period of rapid growth, it can be feel like it is out of control and unless handled well can lead to serious problems.  It can deter you from taking your business to the next level.

The five cornerstones to manage when growing your business are:

Money

Financing the rapid growth of a business can be very challenging.  It is vital to draw a distinction between cash and profit.  It is also important to ensure that there is enough cash to cover the costs of rapid growth.  The management of the cash flow will help you to work to the limit as it is easy to assume that owed money will come in.  However, you need to manage the debtors, as delayed payments can empty your cash position which can be terminal.  Finally, do not forget to account for HMRC (e.g. VAT) and put a provision in place so that the bills (e.g. quarterly VAT) is planned for and not seen as a shock.

Staff

At times of rapid growth it can be tempting to over recruit or recruit too quickly.  Staff are one of the most expensive aspects of your business especially if you recruit the wrong person.   It is important to identify the exact requirement in terms of skills, competencies and aptitude and not just recruit a friend or a fried of a friend.  Do not manipulate the job to the person because it is easy to do, ensure you recruit the best candidate to match the job.

Operations

Moving from a small team of dedicated individuals, who have typically managed through word of mouth, to a larger team quickly will exacerbate inefficiencies, short cuts and short comings in the way things are done.  It is important to get organised with simple, written processes and procedures which everyone can understand and refer to.

Management

The owners of the business during time of rapid growth will typically get sucked back into the day-to-day operational side of the business (which naturally get more complex as the company grows).  Their micro-management can mean that control is lost and the ‘bigger picture’ is made up ‘on the hoof’.  However, be careful not to stand too far back as this can also result in issues as you have no control at all.

Customers

Manage your customers and do not take them for granted.  At times of rapid growth keeping up with high demand is difficult, especially when catering for the flood of customer demands.  It is tempting to cut corners on quality.  This will only exacerbate the problems in the long run because of increase in complaints, failure and returns; thereby inherrantly increasing costs.

 

 

There are other aspects of the business which will need attention during periods of rapid growth but the priority has to be these five cornerstones (specifically Money – cash flow) which if not managed properly will limit your ability to reach your potential; or worse still can cost you your business.

 

10 Common Mistakes Most Business Owners Make

Every owner manager has to find ways to improve how work is done and at the same time look for ways to improve the employee and customer experience but they often make the same common mistakes.  Successful businesses understand that happy customers and employees have a direct impact on the bottom line.

Since most owner managers take on many roles they are prone to make mistakes, which can threaten the business’ long-term survival. Here are 10 of the most common mistakes we have put together.

  1. Unclear Purpose and No Plan

Every owner manger of a business needs to understand the reason for a business’ existence, which is the basis for most business decision making. There is an old saying, “if you fail to plan, you plan to fail.” Every business (large or small) needs a plan, so a business owner must devote time, at least once a year, to review the strategy and goals of the business to ensure it is moving in the planned direction.

  1. No Written or Shared Goals

Goals are how businesses achieve objectives; the business should develop the goals by writing them down and assigning accountability to someone for achieving them. Without taking these steps, it’s difficult to achieve objectives.

  1. No Budget

It’s not uncommon for organisations to operate without a budget; often the owner does not create a budget because of the time investment in the process. There are many successful organisations that don’t operate with a budget, but businesses that do have budgets can allocate money to those things that will ultimately improve and grow the business.

  1. No Employee Accountability

Owner managers who fail to hold employees accountable for job responsibilities and goal achievement are guilty of mismanaging these key resources. Employees who are paid wages without meeting job responsibilities are providing poor value to that organisation

  1. Not Anticipating Market Changes

The market changes quickly in every industry making it important to keep an eye on shifting trends in areas such as technology or customer requirements, and tracking these changes.

  1. Not Understanding Customers

Customers pay the bills, and therefore large and small businesses need to take the time to learn how customers use their products and services and to create systems and processes to meet those needs.  Many businesses develop products or services based on what they think the customer wants – BUT it is vitally important to learn about the real customer experience – by simply asking them. Customer expectations are a moving target so keeping a finger on the pulse of changing needs is critical to maintaining and growing a solid customer base.

  1. Not Considering Employees (and Partners) the Most Important Customers

Employees are the business’ eyes, hands and feet and are usually the first contact customers have with the business.  Employees need to have clear job expectations and the training to perform job responsibilities.  Also they need to be monitored for completing job tasks and rewarded for doing a good job.  Happy employees have a direct impact on a positive customer experience.

  1. Lack of Communication

Poor communication is a problem in most organisations. Successful businesses create processes to manage how information is shared with both employees and customers, using face to face and other communications approaches. This creates a business environment that employees enjoy and customers are attracted to.

  1. Not Always Looking for Ways to Improve

Continuous improvement is must for businesses to develop and enhance products and services by constantly looking for ways to improve how and what they do. The owner manager should always review the internal processes of developing and delivering products and services in an effort to identify improvement opportunities.

  1. Not Celebrating Successes

Celebrating success along the way helps to build strong teams and strengthen employee engagement.  Forgetting to recognise this success diminishes the people involved and reduces the importance of success.

If anything in this blog strikes a nerve or resonates with your own experience, feel free to make a comment below or call Phil on 07720 397040 or email him or fill in the form below

5 Reasons Entrepreneurs Need an Exit Strategy

Entrepreneurs typically think of themselves as starters or creators. It’s in their blood to take an idea and turn it into something really exciting. This is great; it’s what makes entrepreneurs such a special breed. However, this desire to be at the forefront often takes the focus away from the end, which in a business can sometimes be the most important part.

A surprisingly small number of entrepreneurs don’t have a solid plan in place for how they are going to exit their business,  and this is a big mistake. Not convinced? Then consider these reasons why it’s so important for an entrepreneur to have an exit strategy:

#1: An exit strategy helps with investors

One of the biggest challenges small and medium-sized companies face when they’re first starting out is getting support for their business. A lot of time is spent meeting with potential investors trying to sell them on the idea so that they will inject the necessary funding into your business to get it off the ground.

Quite frequently, entrepreneurs forget one fundamental fact about pitching their business to investors: they want to know how they’ll get their money back. By having a clearly defined exit strategy, and one that seems realistic, you are demonstrating to investors that you’ve thought through how you will pay them back.

It’s also important that you choose something that can actually happen. If you go into a meeting and tell potential investors you will be returning their money after a multi-million-pound IPO, you’re going to have a hard time convincing people, as this is a pretty infrequent occurrence. However, if your plan is to sell the business  or possibly merge it with another, then you’re presenting a far more likely scenario and boosting your chances of acquiring that necessary funding.

#2: An exit strategy gives you a plan for the future

Something that stands out amongst entrepreneurs is how little thought they’ve given to retirement. It’s easy to think while you are working on the business that you are going to continue to do so for the rest of your life, but this is just unrealistic. A day will come when life tells you it is time to do something else, and if you don’t have an exit strategy, then you’ll be left improvising the best way to walk away without losing tons of money.

Try to avoid this as best you can. The important thing to remember is that having an exit strategy doesn’t mean you are going to use it. It’s merely a plan for properly walking away, and not having one does far more harm than good.

#3: An exit strategy gives you some insurance

Small businesses tend to rely heavily on a small amount of people. This makes sense, as it’s usually the vision of one person or a small group that helps drive the company forward. However, even though we don’t want to think about this, things can happen that will take you away from the business.

People get sick, accidents happen, grandchildren come along, and so on. There’s really no telling what life will bring to your front door. If you have an exit strategy in place, then you basically have a contingency plan for what you’ll do in case you become incapable of running the business yourself. Perhaps you have to step aside during this process, but this only increases the value of the exit strategy since having one in place already means all that others need to do is execute.

#4: An exit strategy encourages better business practices

When you start looking further into what goes into selling a business, you’ll see that many of the things you need to do to maximize business value are actually just sound practices you should be doing anyway.

Some of the key things to focus on include keeping good records, devising risk management plans, optimizing business processes, and creating sustainable drivers of key sales. When you read this, you should be thinking: don’t I want this in my business anyway? The answer is yes! Yes, you do! So, by devising an exit strategy, you are essentially making an active commitment to improving the way you run your business right now.

#5: An exit strategy promotes long-term thinking

Entrepreneurs are too often guilty of focusing too much on the short term. It’s understandable, as there are tons of problems and issues to overcome in the beginning, but if you lose sight of where you are headed, you’re setting yourself up to run into a wall in the future.

Coming up with an exit strategy is an effective way of escaping this type of thinking. It forces you to ask questions such as: Where do we want to be in five years? What’s preventing us from getting there? What problems or risks are we facing but not addressing? These are great questions to be asking, and taking the time to create an exit strategy is a great chance to answer them.

It’s important to be focused on the here and now, but losing sight of the end goal is a common pitfall for many entrepreneurs. There’s a chance you’ll need to use your exit strategy someday, but if you don’t, the type of thinking it requires can only make your business better.

If you would like some guidance with preparing exit strategy and would like to increase your business value in preparation for a sale, download this FREE whitepaper ‘So you are thinking about selling your business’

About the author: Jock is an internet entrepreneur who has started and run several online companies throughout his career. After selling his first business somewhat unexpectedly, he learned the value of coming up with an exit strategy. Now, when he advises other entrepreneurs, he always stresses the importance of this way of thinking.

6 Challenges Facing Small Businesses in 2018

Any business owner operating a small business, knows how time consuming, difficult and stressful it can be to grow in changing times.

With 2018 set to be another challenging year for small businesses, managing volatility and facing challenges will be a skill all business leaders need to nurture. The comforting aspect is you’re not alone. Other business owners are experiencing the same issues as you.  When you understand the challenges,  you can take action by setting up the systems and processes, or seek help from the right professionals, to solve these problems before they even happen.

Our long term experience working with small businesses has helped to identify the most common and time consuming challenges that are, or have been, bothering our clients recently. Clearly, there are numerous challenges lurking in small businesses but we’ve boiled them down to the top 6.

1. GDPR

There are many issues facing business owners such as Brexit, access to finance, changes to pensions and many more, but remember the date May 25th 2018. This is the day when the European General Data Protection Regulation (GDPR) comes into force. This legislation will replace the current Data Protection Act.

What does GDPR mean for your business?

All businesses, big or small have to comply with the new regulations regarding the secure collection, processing, storage and usage of personal information. The objective is to improve rights and protect personal data.

With no transition period leeway and large fines for non-compliance, this is not the time to put your head in the sand. Despite Brexit looming, UK companies still need to comply with this new regulation with confirmation that the UK will mirror the GDPR post Brexit.

Read ICO definition of personal data means here.

6 principles of GDPR

The company data controller is responsible for, and needs to be able to demonstrate, compliance with all these principles:

Personal data should be:

  1. Processed lawfully, fairly and in a transparent manner
  2. Collected for specified explicit and legitimate purposes
  3. Adequate, relevant, and limited to what’s necessary in relation to the purpose
  4. Accurate and where necessary, kept up to date
  5. Kept no longer than necessary
  6. Processed ensuring appropriate security

Choose which of these lawful bases for processing personal data is most appropriate to use depending on your purpose and relationship with the individual.  You will need to justify the reasoning so ensure you record this in a policy document.

Where do I start with GDPR?

The ICO has produced some very useful and clear guidelines and documents on their website explaining GDPR in greater depth. Reviewing the information from the official source will help weed out the conflicting information from various companies on the subject.

Start with the below documents:

12 steps to prepare for GDPR

Guide to GDPR

CMC Partners are business advisers not GDPR experts, we simply wish to raise awareness of this looming regulation to business owners. We encourage you to seek guidance from ICO and/or legal advice, if required.

2. Cash Flow

For small businesses cash is the lifeblood to keep daily operations running. Too many business owners struggle to manage it effectively or recognise the importance.

‘92% of business owners surveyed experienced problems from time to time or consistently.’ CMC Partners Survey 2016

It is normal to have cash flow inconsistencies but being in control is essential not only for the health of your business but to free up some of your time to focus your attention on managing and growing your business.

Tips for Cash flow Management 

To minimise the impact of peaks and troughs, download our Cash Flow Whitepaper here.

3. Underperforming Staff

Most businesses at some point in their business journey experience issues with an under performing employee. Informing a member of staff that they are under performing can be a daunting prospect. You may be one of the many owners who dislikes and even avoids this conflict but unresolved it can be poisonous for your business.

We are working with various owners currently to identify and resolve these type of people issues within their business.

To start, you need to ask yourself some key questions:

  • Have you made your expectations clear?
  • Has the employee had sufficient training?
  • Is the workload too high?
  • Did you hire the wrong person for the job?
  • Are their personal issues affecting the employee?
  • Is the communication effective between the person and the team or manager?
  • Have you considered motivating factors ?
  • Is there another role which the person would be better suited to?

Once you have considered the above, a plan of action for improvement can be implemented.

Failing the above then you will need to follow the disciplinary process. Meanwhile the employee may well come to the conclusion that it’s not working out for them and hand in their notice.

Determining what resources are required in terms of people and skills is key to growing any business. In our experience of working with business owners, most encounter problems when it comes to hiring the right people. To help guide you through this process, download our Growing your Business – The People Dimension

4. Too hands on

A remarkably common issue amongst business owners is being too ‘hands on’ with running everyday operations. Owners are having to focus on the day to day running of the business to such an extent that thinking about managing and growing their business is neglected.

This approach leads to the owner neglecting the overall strategy and their personal objectives, causing detrimental effects.

What can you do about it?

Stand back, review the situation and focus on managing and growing your business. Hire, delegate, lead and motivate your team. This will free up your time to focus on the key aspects to  successful growing your business. Read more here

5. The Right Systems

All businesses produce and rely on large volumes of information – financials, customer data and interactions, employee details, regulatory requirements and so on. To be efficient and effective, the right systems are crucial to business growth.

Responsibilities and tasks can be delegated as your business grows. However this does require solid management information systems to manage effectively. The larger your business grows, the harder it is to share information and work together effectively. Putting the right infrastructure in place is an essential part of growing.

Documentation, policies and procedures also become increasingly important as more employees join your business. Gone are the days of surviving on spreadsheets or filing on your desktop as customers and employee grow in numbers. You need proper contracts, clear T&Cs and effective employment procedures.

Investing in the right systems early on will certainly pay off both short and long term through efficiency.

6. Overvaluing your Business

As a business owner, exiting or selling your business is personal since you have worked so hard over the years to nurture and build it.  This emotional attachment often leads to owners overlooking flaws and overvaluing their business. Of course, there is no harm of thinking well of your business, unless you wish to improve its profitability or plan to sell it.

Taking a step back to view your business as a potential buyer would see it will help you succeed in building real value in your business.

Developing a personalised and achievable exit strategy will help shape your business and maximimise the value over the years, allowing you to exit at a time of your choosing.

CMC Partners specialise in Exit Strategy development and selling businesses. We help owners realise the full potential of their business whilst maximising its sale value. If you would like an initial conversation or realistic valuation with advice on how to improve it, contact us.

Conclusion

These challenges amongst others are experienced by all business owners including your competitors regardless of the industry. How you respond to these challenges and whether you are in to control of them will determine your success.

Face these challenges, tackle them, resolve them and move on to focusing your time on running your business profitably.

Since 1989, CMC have been guiding business owners to achieve their goals whether sustainable growth, increasing business value, planning your exit strategy, succession or selling your business. As business owners ourselves with vast business experience,  we listen to, and support owners through the twists and turns of running a business. We give a range of practical advice, perspectives and direction to help you take control, make informed decisions and overcome challenges. If you would like help with the above challenges or other business problems, arrange your FREE 2hr appointment here.

Growth Strategies -Scaling your business for Growth : your road map of the speed bumps

What is involved in ‘scaling your business’? It is probably best to answer that question first. For a business it is the model or system whose characteristics are that it is able to cope and perform under an increased or expanding workload. Or, a scalable business is one that can maintain or improve profit margins while sales volume increases. Since profit = revenue – costs, scalability is where the growth rate of cost is less than the growth rate of turnover.

The idea of scalability in a business has become easier to model and predict in recent years as technology has made it easier to acquire customers and scale. Technology companies or technology intensive businesses can have an amazing ability to scale quickly, making them high growth opportunities. For example businesses with low operating overhead and little to no burden of shop fronts, warehousing & inventory don’t need a lot of resources or infrastructure to grow rapidly.

At its core, a scalable business is one that focuses on the implementation of processes that lead to an efficient and effective operation. It is therefore key that the business has effective tools for measurement, so the entire business can be assessed and managed at every level.

Making the decision for scaling your business is an exciting process that has the potential to bring significant success to both your business and to you the owner manager. Scaling your business isn’t always an easy thing to do, as the many areas needing to change that can hinder a successful businesses.

So let’s get some details on the road map to scaling your business, i.e. what are the pitfalls and how to get some answers to them

Scaling your business ‘too soon’

Some owner managers try and scale with errors still present in the product they are taking to market, believing that these kinks will work themselves out over time. Others start to increase growth and production without being clear who their future customers actually are or without knowing if the market has sustainable demand.

   Answer – do your due diligence and perfect your product before you begin to scale.

Choosing the wrong people as part of your team

Whether it’s engaging suppliers, recruiting staff or adding investors, or growing internal teams, this is one of the most common mistakes growth businesses make. It is easy to simply accept the help and staff that come along naturally, without thinking about how they fit into your bigger plan as the business grows. These people represent long-term relationships, so carefully consider how they will work with your company and culture.

   Answer – if possible engage with people who have scaled a business before and rely on their expertise – remember that a great culture fit and competence are key for the long term.

Focusing on sales and marketing instead of building long-term demand

When scaling, many owner managers focus on massively increasing sales and marketing activities, but these are only short-term, tactical initiatives.

   Answer – create a strong buyer market and build long-term demand is just as important to your overall success — if not more so – there is such a thing as over-hiring for sales in your business.

Competing on price

As you begin to scale your business, it is tempting to compete on price in order to gain market share. From a cost perspective you think that by ramping up production, you can cut your price and still be profitable. While this works occasionally, competing on price more often results in a “race to the bottom,” both in terms of profit and quality.

   Answer – it is far better to compete on quality and customer service than to position yourself as your industry’s low-cost provider.

Not changing management structures as growth occurs

The management and leadership structures that work well with a company of 20 people may not work well when you have 200 staff. Scaling brings its own challenges, and your leadership team has to be ready to change and adapt.

   Answer – a flat structure that worked well when you were small will almost certainly give way to a more defined leadership hierarchy with more clearly defined roles and responsibilities for individuals and teams.

Forgetting that trimming fat is part of scaling

A few owner managers think that scaling only involves growing upward and sideward. You may find things that no longer work, departments that are no longer needed, and staff members that cannot grow as the business grows.

   Answer – trim back those areas that are no longer working is an important part of building on those things that are. As you scale your business, don’t be afraid to trim fat so that your company can grow effectively.

Ignoring issues that arise when they arise

An owner manager scaling the business cannot ignore issues as they arise. Growth, especially when it happens quickly, takes most people out of their comfort zone, so there are bound to be personnel, personality, product, etc. issues along the way.

   Answer – do not try and persuade yourself that things are OK when you can see they are not, and do not believe that things can’t change for the better by leaving things as they are – confront issues head on to avoid long-term damage to your business.

Making the decision to scale your business is not always a simple set of choices so you will need some guidance.   If you as an owner manger wanting to scale your business efficiently and effectively in the next 6 to 12 months call CMC on 01844 319286 or complete the contact form below.

White Paper – Taking Control of the Cash in Your Business

Do you feel in control of the cash in your small business?

For small businesses cash is the lifeblood to keep daily operations running. Too many business owners struggle to manage it effectively or recognise the importance.

‘92% of business owners surveyed experienced problems from time to time or consistently.’ CMC Partners Survey 2016

It is normal to have cash flow inconsistencies but being in control is essential.

This whitepaper covers:

  • Basics of accounting – what is profit, determining business viability, cash to cash cycle
  • 7 steps to follow is cash becomes tight
  • Checklist of ‘red flags’ to identify the problems causing cash issues
  • Why too much surplus cash in the business is not a good idea
  • Preventative actions
  • and more

This whitepaper is designed to help business owners minimise the impact of the peaks and troughs experienced during a financial year. This freeing up your time to focus your attention on managing and/or growing your business.

Learn how to manage your business ‘by numbers’.

Download your cash whitepaper by completing the form below

Selling your business

Increasing business profitability with 4 simple steps

As a general rule, I find that people have a tendency to make things more complicated than necessary. This is especially true if the problem they are trying to solve seems to be difficult, or the objective they want to achieve is elusive. Under these circumstances I think we all quite naturally look for complicated answers. Increasing business profitability is a good example of an issue where it is easy to overlook the straightforward and simple answers.

I will go into each in a bit more detail below but my four “no-brainer” tips to increase business profit are:

  1. Never give anything away . . . ever!
  2. Look for ways to reduce costs – and do this routinely!
  3. Upsell or cross-sell at every opportunity!
  4. Send the invoice and collect the cash promptly!

1. No Freebies

Most small businesses would be horrified by the suggestion that they give stuff away – but most do. The discount that wasn’t really necessary, the training course that should really have been paid for, the accessory that should have been sent with the original order but had to be shipped separately, the second visit to the customer when the problem should have been fixed on the first occasion. Every single example quoted above – and dozens more besides – are just different ways of giving stuff away. Stop being so charitable and the profits will improve.

2. Reduce Costs

Reducing costs is absolutely the easiest way to improve profitability.  And yet, most small businesses seldom analyse their direct costs or review their overhead spend. The only way to do this properly is to adopt a “zero-base” mentality and challenge each and every item of cost on a line-by-line basis.

Surprisingly, one of biggest and most common areas where small businesses sustain and tolerate inflated costs is in their payroll or wages bill. This might sound crazy when everyone appears to be “so busy”.  Busy they may be, but are they doing productive work, in an efficient manner? In small businesses there is often a reluctance to address the issue of poor individual performance or staff discipline. The result is low levels of productivity or, in other words, higher costs than necessary.

The other big, and usually hidden culprit, in most small businesses is poor quality. Every time you get stuff wrong – and have to do it again – you drive down profit (and you damage your reputation which makes the next sale harder . . . and therefore more costly. A double whammy!).

3. Upsell and cross sell

A lot of the cost in any typical business is down to all the marketing and selling activity. The simple version of the story is that finding a new customer costs a lot of money and usually so does the effort involved to close each deal.  If you can persuade the customer to buy more of the things they need with each transaction your sales operation becomes more profitable. The classic example that is always given is the tin of shoe polish you are offered each time you buy a new pair of shoes.

4. Send the invoice and collect the cash

The last point requires no explanation – just sound business practice. Even so, it is surprising how often credit control is most commonly the function that nobody considers to be their job.

Do you need help increasing business profitability?

These ideas for increasing business profitability have two important things in common. Firstly, it is usually far easier to identify the problem from outside and secondly fixing the problem will usually require a change of behaviour. Two very good reasons to work with a mentor you can trust.