04 May 2023
Expansion & Improvement
Starting and growing a business is a highly personal journey. Entrepreneurs seek to grow for a range of reasons, including improving profitability, securing a lasting legacy, or building a better future for their employees and families. But the path to expanding your business is not one-size-fits-all. In practice, growth is a constantly moving target, driven by evolving market demand, competitive pressures, and customers’ changing needs and desires.
That’s why creating a successful growth strategy requires taking into account the unique goals, economic conditions, and long-term plans of your business and revising regularly.
Gary Heywood explains how to approach your growth strategy to achieve your goals.
Understanding what growth means to you
When embarking on a growth plan, the first step is to assess your business goals and determine the route you want to take. Business owners have different aspirations, and understanding these will be the foundation of your plan – which includes choosing the limits of your ambition.
After all, for many clients, their primary goal is to earn a decent living and enjoy a certain standard of lifestyle. These individuals may not need to prioritise aggressive growth and may benefit from focusing more on work-life balance and the stability of their business.
For others, the aim is to create a legacy, pass on their business to family members, or build a large scale operation. If you have backing from investors, especially venture capitalists or private equity firms, they’ll bring their own interests, looking to receive returns and rewards. This brings heavy pressure to grow, usually requiring set plans for increasing various aspects of the business and requiring investment of time, effort and money to match.
Defining growth on your terms
A successful growth strategy starts with a clear understanding of what it means for your business. Growth can come from multiple factors, including headcount, revenue, premises or market expansion – but not all factors have the same impact for you and your success.
This can be seen mostly clearly when comparing turnover and profit – top line vs bottom line.
Turnover refers to the total sales generated by a business, whereas profit is the difference between the total revenue and the total expenses. While increasing turnover often seems the simplest and most appealing route, it’s essential to remember the old phrase that turnover is vanity, and profit is sanity. Growing turnover does not always translate into growing profit and focusing solely on the former can leave you overextended.
Although it is challenging to grow without increasing turnover, focusing on improving profit margins can be a valuable, if incremental, source of growth. This approach may involve optimising operational efficiency, cutting costs, or raising prices – small gains that can make a big difference when it comes to long term, sustainable success.
Choosing the right expansion strategy
Different businesses face different pressures when it comes to growth - moreover, these will often change over the course of your business lifecycle. At some stages, slower, stable growth may be the soundest option to establish your position, while more competitive environments can demand more aggressive action.
Organic growth is an ongoing process that allows you to understand and expand your customer-base and refine your offerings. This approach often involves starting small and building a loyal clientele through consistent performance. By delivering exceptional service and creating quality products, you can gradually add to your team, introduce new product lines, and accumulate capital for further expansion when market conditions are favourable.
This will often be the process for new businesses, building a stable portfolio of customers and trading history, in order to win investment or lending on more acceptable terms, or once you have found the right product-market fit.
Acquired growth offers a faster route to expansion but comes with inherent risks. This strategy often involves merging with or acquiring other businesses to increase market share or diversify product offerings. This is a capital-intensive and more complex process, but can potentially yield greater rewards.
It’s crucial to ensure that the merging entities align in terms of culture and unique selling propositions (USPs) to increase the likelihood of success. Depending on the market, this approach may involve horizontal or vertical integration to create a more comprehensive product offering where the respective markets of each component business can reinforce each other and drive further acquisition.
Establishing the right environment for growth
As your business grows, owner-managers need to adapt management and support structures to accommodate the changes and challenges that come with expansion.
Building a growth-oriented team
A critical aspect of managing growth is preparing your management team to support your expanding operations. While this is simple enough when starting with a small, ambitious core of original employees, growing your headcount requires making the right decisions about who can evolve with you.
It's important to remember that not everyone wants to go on a growth journey; a growth culture requires employees who are eager to learn, adapt, and change with the business. Be prepared to adjust your team composition as needed to ensure that you have the right people on board to support your growth objectives, bringing the right skills, experience and attitude to drive your business forward.
Systems and processes
One of the most commonly overlooked aspects of growth is the need for systems and processes to change to remain scalable. Outdated or inefficient systems can lead to a lack of visibility over finances, decreased productivity, and potential compliance issues as the burdens on your business increase.
To avoid these pitfalls, plan for structured growth by investing in the right tools and processes before the need for them becomes critical, especially when it comes to data, financial management and human resource compliance.
A key example is cash flow – the most common reason for business failure. Owner-managers chasing growth can quickly find themselves running out of resources without the right financial management information systems, cash flow forecasting, and credit control measures. Working with an experienced advisor can help you build the right systems to track revenue and costs in real-time to maintain a healthy cash flow, providing the right data to help you invest in growth opportunities and weather any financial challenges that may arise.
Planning your growth strategy with Haines Watts
At Haines Watts, we build our services and advice around the unique needs of our customers. Every growth journey is different, requiring unique support and strategies – that’s why we work as an extension of your team to use the latest tools, advice and insights from our experience to help you understand the options available to you.
Whether you’re looking to maximise profitability or rapidly expand, we can help you stay in control of your decisions with reliable data and advice.
Get in touch with one of our team to find out how we can support you in your growth journey.