Growing Pains for Businesses

In our experience scaling up can be all too painful for the business and the individuals concerned. So, a good starting point is to have a clear objective in mind which links the business performance to longer term goals such as building a legacy or planning for an exit, before deciding your growth strategy. Taken in this context growth is essential for the business to achieve the goal whilst not ignoring the pain that often accompanies businesses going through rapid change. This thought piece considers some of the key issues and pain points facing a business planning to scale up:

• Business Plan / Goals
• Board / Management Team
• Business Offering
• Cash
• Team

Growth should not be seen as a goal in itself due to the potential for unforeseen consequences. Growth defined as a goal could mean that success is tripling sales with the business’ biggest customer which delivers the pain of over- reliance, best -price contracts and ‘pay when suits’ settlement terms. Having a clear vision of what the business will need to look like in 5- years is an important first step to defining the strategic direction of the business and it may well be useful to seek advice at this stage.

The Executive Team made up of Board Members and Senior Management may well have been with the business owner from the very beginning of the business and be performing well within the current size of the business. However, the painful truth is that some individuals will not have the experience or knowledge to be able to manage the larger organisation. Unaddressed this issue could at the very least hinder future growth or at worst derail the business; typically the management areas that are most vulnerable are Finance, People Management and Operations.

Do the existing product or service offerings naturally attract a wider customer audience or is the business currently appealing to a niche market. Is the accessible market big enough for the expansion plans or does it require entering new markets and if so how does the business gain entry. The pain is in the not knowing and following a plan that sooner rather than later runs out of momentum leaving the business without the resources to switch direction.

‘Cash is sanity, sales are vanity’ we feel has a very special resonance for businesses embarking on growth because of the sensitivity of the working capital ratio to changes in the actual sales growth. The pain is all too obvious when supplier terms need to be stretched to meet the shortfall in cash receipts as sales targets are missed. Lack of cash will also infect the whole business as overhead budgets become tighter and pay awards fail to reflect the extra effort being given by the team.

Moving to the team, growth will mean additional team members as workloads increase across the business. Pain springs from the imbalanced increase in the teams across the business with more resource going to ‘frontline’ teams and proportionately less to the back office. If we couple this issue with the management ability pain point, we have the potential for a ‘perfect storm;’ poorly managed, overworked teams expected to ship more product, raise more sales invoices and collect more cash from new customers who demand new shipping requirements, different information on invoices and longer credit terms.

The majority of the ‘hard lifting’ involved in delivering a growth strategy will have to be done by the business to ensure the rewards from the growth deliver the goals. But judicious engagement with experienced advisers can smooth the path and provide some pain relief for the difficult decisions ahead.

This article is co-authored by Clarkslegal and Diamond Clarity Consultants.  Our next article will focus on selling your business.

Clarkslegal’s corporate/M&A team specialise in advising owner-managers on exiting their business.

Diamond Clarity Consultants work alongside management teams to help deliver their strategy and business goals