Growth in business is a good thing? Right? It is what all owners / managers / employees strive for. But periods of growth can counterintuitively be a time of higher risk to a business. The key is managing the growth so that it is affordable, achievable and does not bring with it barrel-loads of stress.
I’ll wager that most businesses would say that they are looking to grow in the next n months or years. But what does that mean? Grow turnover, increase the number of employees, move to bigger premises or perhaps acquire a competitor or competitor’s team? All of these are entirely laudable but, leaving aside the question of how, what is the impact achieving these targets on profitability and cash?
There have been many occasions where I have become involved in businesses have overtraded, which in turn has caused problems with their cash flow and in turn concern from their bank. Such an instance does not just occur when a business has had an unexpected opportunity present itself, which results in a jump in turnover. Growth usually requires additional resources, staff, raw materials, machinery, premises. All of these have to be paid for well before the additional revenue arrives.
The problem that needs to be addressed is the availability of working capital and the impact on cash flow. Properly managed and with the right financial management tools in place a business can ensure that it has the cash availability it needs for the growth. Such information will enable the business to ascertain what additional support it is likely to require in terms of banking facilities and have the appropriate discussions at the earliest opportunity.
Consideration also needs to be given to the management and staff. It is unreasonable and unsustainable to expect individuals who are already fully extended supporting the current level of business to simply take on more work and responsibility. Such change is a fast route to dissatisfaction, increased stress and errors, all of which are pretty undesirable in any business.
A well-planned growth path, with clearly defined goals, which operates within the financial constraints of the business, is achievable and sustainable and offers the best opportunity for a business to succeed while avoiding the pitfalls.
I have been lucky enough to be involved with several businesses over the last few years which have grown successfully. I have on several of these occasions shown my commitment to the business by agreeing to a structured fee basis linked to the achievement of the agreed targets and am happy to do so again.
Hopefully, we will soon see businesses start to grow again after the enforced contraction of the COVID-19 pandemic. Businesses will be keen to make up for the lost time and as a result, will be focussed on getting back to levels of turnover they achieved before the lockdown. But the financial and debt structure of the business is likely to be significantly different from what it was a couple of months ago. And that is where a structured business plan will be invaluable.
