In my 30 years’ experience working with owners of small and medium-sized businesses, I’ve learned that managing and funding growth is one of the greatest challenges they face.

Growing pains

Firstly, it’s important to understand that growth creates many issues, such as:

  • Sufficient cash flow to pay increased wages
  • Issues managing stock
  • Processes and systems capable of handling the increased workload
  • Staff efficiency to minimise the extra resources required
  • Capital costs for infrastructure development (vehicles, specialised plant and equipment)

Consequently, as your Business Advisor, it is my role to ask you all the hard questions. Your answers will help identify the real value of the opportunities for growth. Because they can be properly assessed against the risks that are also part of that growth opportunity.

A real-life example

A small Waikato based company with four staff was asked to tender for a large contract in Auckland. This was an extension of the work they were already doing for the same client in Hamilton.

The opportunity was significant in terms of turn over and potential growth. However, there were two significant risks. The owners considered discounting these in the pursuit of growth:

  1. Two staff driving to Auckland and back daily and doing hard physical labour each day. This poses a potential and significant Health and Safety risk around fatigue.
  2. To carry out the work, the company needed to purchase two pieces of costly specialist equipment. However, there was a fixed price the company could charge for its use. This resulted in a poor return on investment for the plant. To recoup the costs would take ten years with both pieces hired out every day for eight hours each per day.

Assessing these risks properly made it clear the opportunity didn’t stack up. Instead, the company will focus on building stronger local relationships.

Assessing your growth opportunities

If you need help to assess an opportunity or with managing growth, often an experienced external view can bring real clarity. Advantage Business Advisors offer an initial meeting at no charge – your risk is low!

 

By Steve Murray