24 May 2021
Expansion & Improvement,
Funding and Asset Finance
After the challenges faced during the pandemic, most sectors are now beginning to look towards recovery. In some cases, business owners are preparing for the surge in demand that is expected with the easing of lockdown restrictions.
The economy is growing and banks report increased confidence with businesses rushing to meet this increased demand.
Gary Heywood explains that while growth is a good thing, it can come with multiple price tags. He details what to look out for as your business returns to growth.
Consider your supply chain
It is important to consider your supply chain when taking on new projects. There are glaring holes on supply-side planning for some businesses.
One construction company client saw demand for its large capital projects pick up – especially in overseas markets. But they couldn’t get manufactured units from the Far East to the overseas clients in the Americas as all the ships were booked up for months. Added to this, component prices rose exponentially, lead times lengthened and they couldn’t get their engineers onto sites.
Others have also found that key raw materials are hard to get hold of and that even sand is scarce. Increasing prices play havoc with margins and the lack of supply threatens delivery. All of which has a knock on effect on whether you can meet your deadlines.
Avoid over trading
While increased sales are good news, fast growth drains cash. You need to buy more product, hire more staff and spend more on transport.
You have to pay the wages on time, and other essentials such as rent and tax. It takes time to collect money from customers and credit control gets tougher. This can mean you hit a funding gap.
It’s the ultimate balancing act. Experience, steady nerves and robust financial planning and forecasting enable you to make the right calls.
Be brave and pivot
One of our global clients was reliant on the hospitality market. Its multi-million-pound turnover was slashed by a third and it went from millions in profits to millions in losses.
The owners scrutinised their side businesses and found one in an alternative market that flourished. By quickly redirecting resources they took advantage of the market opportunity and filled the turnover gap.
There’s continuing uncertainty about Brexit: reduced markets, higher prices and tariffs, transport delays and the paperwork burden. Even if tapping into the EU market seems too challenging right now, there are others that can still bring huge opportunity.
As a result of a market review, one client extended its reach into the American, South American and Far Eastern markets. I’ve also supported clients starting to trade in Ireland and Singapore.
A construction client restructured and established a base in The Netherlands. They’ve just enjoyed their best annual financial performance.
It’s gratifying that we can introduce clients to our colleagues on the ground in those unfamiliar territories. Our membership of one of the top 10 legal and accounting networks - Geneva Group International (GGI) – makes that possible.
Map out your future
While the phone might be ringing off the hook now, you need to map the outlook for the next 12 to 18 months in terms of orders, sales, cash flow, investment needs and profitability.
Businesses will need to develop profit projections, balance sheet forecasts and cash flows. At Haines Watts we have software to help take the pain out of these processes and systems for sensitivity analyses to explore “What if?” scenarios. It’s a moving beast and business owners face new challenges every day. So projections are under constant review.
Without plans you can’t see where you need to invest – and whether you have the money available.
Identify investment priorities
As you scale up, there will be multiple demands on your finances.
During the pandemic, most businesses invested in infrastructure, technology and systems where these had not been fit for purpose. Many clients invested in new communications technology and document handling systems to assist with digital signatures and automatic contracts. One client invested in a new workflow system to obtain visual data on contract progression.
Another client – providing services into the food processing industry – fared well through lockdown. But being prudent they took early action and put 30% of their staff on Furlough. Yet they maintained the same turnover. Although it was a tough decision, they made those staff redundant. Of course, their profits took a hit last year as a result of the redundancy programme – but next year their profits will escalate.
One of our clients in the insurance sector did fabulously well during lockdown. They invested heavily, previously, into technology so they could “hoover up” all of the smallest claims and process them in an efficient way. It saved them from hiring an army of people.
Where demand hasn’t picked up, businesses may consider new marketing and sales strategies. But beware. These come with a long list of spending requirements and the pay back takes time to materialise.
Most companies face additional costs – for premises and equipment – to enable their people to return to the workplace. Robust plans mean you can make informed decisions about where to invest and when. And don’t forget some great new tax reliefs with the Super Deduction.
Find the funds
The Government-backed loans and Furlough schemes were life-savers. But many businesses depleted their reserves and cash during the dark days of lockdown. So what do you do now?
The latest Government loans are not on such good terms. And there is the commitment to pay it back – despite the uncertainty. Most lenders will expect personal guarantees which may cause sleepless nights.
Consider outside investors
Venture capital is an option but most businesses are naturally reluctant to give away equity. We have successfully introduced clients to smaller venture capitalists, business growth funds and business angels to bridge the funding gap.
Another route is to look at collaboration. Although there was some nervousness about the taxation impact last year as Entrepreneur’s Relief was replaced with Business Asset Disposal Relief.
Surprisingly, we had two such investment deals during the pandemic. One was a marketing services business where the younger generation wanted to become a bigger player. So we helped them structure a deal with a national business and crafted an exit for the older generation.
We also helped the original owners of a financial services company stay on in the business after the new owners injected some much-needed cash.
Another construction client had most staff as off-balance sheet contractors. We helped them complete a Management Buy Out (MBO) during the Pandemic.
There is no shortage of deal activity.
Develop your senior management team
Another challenge for growing businesses is the need for more management experience.
Expansion usually means more staff – and many businesses don’t have specialist knowledge in-house. I often help my clients with senior hires – to give a view on personality and culture fit.
I advise my clients to allow new senior hires to familiarise themselves with the business and bed in carefully. Not to change the world overnight – which can disrupt the delicate dynamics of a business and stop the momentum.
A services client needed help with customer and supplier relationships in its European territories. During the first year, the new senior hire made little impact. But then started to make some spectacular sales. We introduced an EMI (Enterprise Management Incentive - an approved employee share scheme) to incentivise the individual, lock him into the business and set him on route to succession.
Sometimes we suggest clients consider a Non-Executive Director. These people bring experience and an objective view to the Board and help focus on its strategic aims and plans. They also bring along their little black book of contacts.
Whatever your plans are for your business as you look to the future, we are here to support, challenge and help implement change to achieve your goals.
If you would like to talk about how to grow your business, talk to our team.