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Growing a Business

A client recently said to me: “I want to grow our business and stop the cash burn – how do we do this? When is it the right time to invest and grow?”

What a tough question to answer. Each business is at a different stage.

We spent a day examining his business and determining what the growing pains were. He had started the business a few years ago and it grew from scratch to $750k turnover last financial year. This year they may potentially reach a turnover of $1.2m.

It was generating a great turnover and growing but they never had any cash.

“Why?” he asked.

After reviewing the business financials it was quite clear that the internal systems were not in place. He could not possibly understand the profitability of the products they were selling due to these inadequate systems.

Therefore they could not take the next step.

The first question I asked was: “Where do you want to take this business – what’s your goal? To build up the business and exit down the line, or are you looking to exit now? Or is this business a keeper if we can generate a great RoI?”

The response was: “We don’t know the numbers or where this business could get too as we have no clarity on the numbers”.

Something I see very commonly here in the SME businesses I work with – no clarity around the financials.

Next Steps

Step one for this particular client was to build a reporting framework around their products to determine what was profitable and what as not. If there were non profitable products (or those that deliver little profitability), should we dump them or only include them bundles in the online offering?

Step two: Build a fully flexible 3-way financial model (P&L, Cash Flow and Balance Sheet) for the next 3 years. Play around with the assumptions, i.e what other products can we put into the offering to customers?

Step three: Monthly reviews against the plan – what worked, what didn’t work and the whys around both.

The right time for a business to grow is when they can balance new customer demand with their internal systems and processes. Moreover, in the instance of this client, increasing recurring revenue streams. Growing faster generally costs more per customer as they need to engage more expensive channels within the business model.

Scalability is about continuing to engage customers with new offerings, and to engage new customers with your offering to the market.

To scale a business one must consider how the business model will affect the bottom line when you expand operations. If you have low capital expenditure and can grow your business with the same revenue / expense % it is much easier to deliver greater numbers in the long term and provide greater options to your customers.

It is early days working with this client but the potential is endless.

Who is Working for Whom?

A rhetorical question for you – “Is the business working for me or am I working for the business?”

Before you answer, perhaps it may be opportune to really reflect on where things stand for you and your business, and what you would like to achieve this year for both.

The thought of taking some time out for reflection may sound like a “nice thing to do”, however it can be a very powerful exercise.  It’s been one year since Covid hit, have you made time (with no distractions) to REALLY reflect? Or have you been swept into 2021 with hardly time to a take a breath?

Time to reflect

The practice of Reflection can be an excellent way to provide you with a sense of calm and clarity, allowing you to get clearer on:

  1. What is most important to me personally? (ie what do I value most?)
  2. Am I living the life I choose? If not, what is stopping me?
  3. Why did I start or buy the business?
  4. Are those reasons still valid and aligned with what I want now and for the future?
  5. What does the business need to look like to support my vision and goals?

When you are clear on what is most important to you and the life you would like to live, you can then look at your business through a different lens.  It allows you to honestly question whether the business, in its current state, is an enabler or distractor from achieving your personal goals.

Reflection paves the way for truly effective business planning. This starts with YOU and PURPOSE rather than the business itself. With renewed clarity you gain from personal reflection, your plans for the business may start to look very different. For example:

  • Reducing business dependency on you (or “key people”). This frees you up to spend more time with family or more time to pursue the things that make you truly happy.
  • Exit or succession planning to facilitate your retirement or next project. And we know this often takes longer to successfully implement than you think!
  • Realign the business to better reflect your personal values (such as ethical, social, or environmental considerations).

What’s next?

If “more of the same” doesn’t sound appealing to you, take time to reflect on your Why and personal goals. You can then consider and plan how your business will support you in achieving the life you desire.

The CFO Centre is a worldwide group, united by the common Purpose: “To help you live the life you choose by defining and delivering on the numbers that REALLY matter”. Please jump on our website if you would like to know more: www.cfocentre.com.au

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