Growth is often a difficult concept for start-ups. Many unjustly believe that their business will grow organically and that they will simply add additional resources as the business expands. But once you reach a certain size, upscaling needs to become a conscious choice rather than a reaction to growing market share. So, how do you control the expansion of your business and manage sustainable growth?
To determine if your business is ready for growth, you need to have a clear picture of where it is now. It's all very well making a steady income on a day-to-day basis, but that doesn't necessarily mean your business is ready to expand. You need to consider the effect expansion will have across the board. Do you have enough capital to invest in upscaling? Will the expansion divert too much of your time away from your core business?
Getting too big, too fast has been the downfall of many small businesses. To grow sustainably, you need to keep a tight rein on your operations and don't let booming sales lure you into making rash decisions such as taking on too much debt. For example, if you take out a loan to upscale operations to meet current demand, you need to work out how much return you need to get from that investment to keep the business running. Getting more customers is great, but if you need additional resources to serve those customers, you may end up increasing your debt rather than your profits.
To work out how fast your business can grow without losing money you need to work out your affordable growth rate (AGR), a term coined by Hewlett Packard in the 1950s. This is a simple calculation where you divide this year's net profits by last year's equity. You can then limit your growth to ensure that your business remains sustainable, without having to raise additional funds.
The key to successful expansion is to keep your original mission in mind. This defines what is important to your business and allows you to plan ahead accordingly. With a clear vision, external or internal changes won't be able to distract you from achieving your business goals.
When you're starting out as a small business, most entrepreneurs have a clear idea of what their product/service is and the market they want to target. This means they can focus all their energy in getting that particular product to their target customers.
However, once you become more established, it's very tempting to start pursuing related revenue streams that open up new opportunities. For example, if you started out successfully selling blinds to consumers, then you might think "hey, why don't I sell the same blinds to commercial customers?"
Many businesses have had great success branching out into unknown territory but it is a huge risk nevertheless. If you decide to pursue a new direction, you must bear in mind that a certain amount of time needs to be allocated into researching current market conditions, the customer base and competitors to build a plan for sustainable growth. On top of this you may have to invest in new machinery, additional staff and various other resources. Businesses often underestimate the amount of cash and time that will be needed to break into a related market, so plan carefully.
Copyright © 2015 Helen Naylor. Following a number of years writing for leading industry magazines, Helen has extensive experience with SMEs and now works with various organisations to provide commentaries and information covering a range of industry topics including business solutions, advice for SMEs, business development, manufacturing, technology, logistics and careers.
A business plan is the equivalent of a roadmap for businesses. It is a document that provides vision, goals and benchmarking. It creates momentum and also provides an opportunity for a reality check – what worked last year, where the gaps are and what next year is going to look like.
Many start-ups fail because they lack a map to guide them through their new business venture. A research study conducted by simplybusiness.co.uk with 400 British entrepreneurs shows that 54% have no written business plan and more than two-thirds make decisions based on gut instinct alone. According to the Federation of Small Businesses: “Britain’s best performing small companies are being hampered by a failure of the planning system to allow them to expand”.
Writing and maintaining a regularly updated plan can have a profound impact on business success, helping to demonstrate the viability and value of a business to potential investors and illustrating how investment will be used to grow sales and profit. It also provides a useful reference point and motivational tool for the business owner.
In terms of content, a plan should document objectives and strategy across three key business areas; marketing, operations and finance. These aims should be quantifiable and split between short term (next 12 months) and longer term (next three years). Other sections can include:
In summary, a business plan helps to focus clear roles and goals and motivates business success. As Matthew Brearley, former board director of Vodafone, said: “With a great plan you can engage others with a sense of direction and purpose, align all activities and review progress."
John Davis is managing director of Business Centric Services Group.
My jewellery-making business, Mama Jewels, is nearing the end of its first sixth month of trading, so I thought I’d share an update on our progress so far.
This week my youngest son had his first birthday and I had my first day off Twitter, Facebook and my laptop for as long as I can remember. It felt good to leave my iPhone in the drawer and go out for the day. He was three-months-old when I decided to start Mama Jewels and both my sons are very much part of the journey. I’m hoping to have them trained in jewellery-making very soon!
Very good things are happening all the time, but I am finding myself in a constant juggling act, having to work some very late nights and early mornings to keep up. Sales are increasing, but they’re still not at the levels I wanted at this stage. I keep hoping this will eventually improve.
Visits and online sales are rising steadily after the launch of our new website, which took three (very long) months to develop and even then it didn’t launch on the date planned or the revised date. If you’re planning to launch a new website, build in plenty of spare time, especially for setting up payment accounts, which took longer than I’d expected.
Mama Jewels is currently stocking in 11 online boutiques, which is steadily increasing as we follow up new leads each day. We also have three independent baby shops stocking our products offline. This number is still low, because my ability to make visits is very limited because of my childcare commitments. Over the next couple of weeks I’ve temporarily arranged some extra childcare so I can make more sales visits.
We’ve plenty of events planned coming up to Christmas, including home parties, markets and fairs in targeted areas. We’re starting to get approached by mum and toddler groups to exhibit directly, so word is getting out there, which is great.
I am currently working on improving my Ebay shop, too, which has proved very successful so far and I have approached a friend who is an expert on selling via Amazon.
Progress is good, with daily glimpses of new opportunities. Generally, consumers are feeling the pinch and they’re more cautious than ever. Hopefully, the upcoming season will give us that extra little boost and encourage shop owners to trial my products in a few more retail outlets before Christmas. We’ll see.
Amanda Waring, Mama Jewels
You can find out more about Amanda on the interactive business website www.inafishbowl.com
Are you prepared to work hard? And not just hard, harder than you have ever worked before in your life?
Are you prepared to experience and savour the intense highs of business success?
If yes, then read on...
Your first 18 months of business life will be a roller coaster ride. Being your own boss brings you true freedom to do what YOU want with YOUR business and take it to where YOU want to take it. Being your own boss is addictive and compelling, and after six months you will know for certain whether you ever want to go back to corporate life.
As your own boss you are not just plotting a course and steering the ship, but deciding what ship to steer and the reason why you need to steer it in this destination. Sometimes luck plays a part in business success, but more often than not any luck is underpinned by a lot of hard work and dedication. Your role as boss is to provide the drive, vision and motivation to take your business through the storm into the next port.
However, when it is just you in your business, with potentially a mortgage to pay, you need to be very focused and disciplined. This means motivating yourself to get up each morning and get to work – even if this is your kitchen table or study. It also means being able to finish what you have started, and focus on the strategy and plans which will build your business. Only your energy will take your business forward, no-one else will.
Discipline is more than focusing on a strategy or plan until you get the required results, it’s also about making sure the tasks that you don’t enjoy get done, and they get done on time. To survive the first two years in business, which 70% of businesses don’t, you need to keep an iron fist on your finances, and regularly monitor your incomings, outgoings and your cash flow.
Your time does now really equate to money. If you are focusing on something that is not directly linked to running or building the business, this is costing you money. Discipline is needed from you to work to your business plan, and make sure that you give yourself re-charge, reflection and planning time. This time is just as important as time working ‘in the business’.
Does the thought of building something from scratch for yourself appeal? Or are you scared at the thought of having to put in your own processes, systems, plans in place and constantly use your own initiative? If you are not ‘turned on’ by the thought of building it all from scratch you may benefit from buying a franchise – i.e. getting a ready-made business in a box.
Rejection is part and parcel of life as a business owner. To succeed as a business owner you have to connect with your inner tigger. I can guarantee that as your own boss, you will ‘suffer the slings and arrows of outrageous fortune’. Your inner tigger will help you bounce back and re-motivate the troops when your business has hit a setback. Because, if you don’t inspire people to get back up and going again, no-one else will.
So to summarise, you will need drive, passion, enthusiasm, vision and bucket loads of discipline and focus.
Are you up for the challenge?
Heather Townsend, The Efficiency Coach
After a very busy period planning for a major consumer show at the NEC and other important activities, I was looking forward to a few quieter days in the office, whilst Tony, my production guy come right hand, was fulfilling weekly orders and perfecting the new product to send samples of later on this week.
However... best laid plans. A large order arrived today marked URGENT and I need to drop what I’m doing yet again and come to the rescue.
My customers come first. But the stuff I need to do this week is strategic stuff, things that move the business forward. I’m torn and, quite frankly, I’m tired. If I don’t come to the rescue the orders won’t be complete in time and, if I do, then I have to work all hours to do the strategic stuff in the night. And to make matters worse, Tony in production told me ages ago that he needed two days off this week.
You may think that this is partly due to bad planning on the production side and that I should hold stock. However, our products are chilled, with no preservatives, and have a short shelf life (30 days from production), so I need to produce and ship quickly so the distributors and the shops get products with a decent shelf life.
It looks like I’m up until 2am again working for a few days! Oh well, I don’t mind, it’s a super exciting time and being stretched to fulfil orders is a nice problem to have. I just have to make sure I do the strategic stuff as well so that I am working on my business as well as in it!
You can find out more about Marcela on the new interactive business website www.inafishbowl.com
I am sure we have all driven in fog. Near me, there is a notorious black spot. It’s often foggy, and when it is, it’s like pea soup. As I carefully pick my way along, I’m usually passed by a few nutters doing more than 70mph. There’ve got no chance if they come across anything solid. It’s a way of playing probabilities that doesn’t appeal to me.
I know quite a lot of entrepreneurs that have started their own businesses. The successful ones always seem to have a deep knowledge of the key numbers for their business. As soon as you are talking business, they start telling you their figures. But this isn’t boring, geeky stuff. The numbers at their finger tips are the ones that show if the business is starting to work. They’re usually about the cost of getting new customers and how many were recruited last week. Then they explain how profitable it is, and whether more money should be poured in, or plans changed.
Starting a business is hard. You have to be both driven and confident to succeed. But confidence must be tempered with the reality that we all make mistakes. We need to measure things all the time. That way we can correct those mistakes and make adjustments as soon as possible.
Entrepreneurs that do everything by gut instinct are missing a trick. Like the maniac drivers in the fog, they feel invincible. But unlike most of the drivers, the majority of them won’t survive, at least in business terms.
Business planning is very important for all businesses, and franchise businesses are no different. The business planning process helps ensure that sufficient thought is put into all aspects of the franchise. While it is tempting to assume that because a franchise is based on a successful, proven business model, it is guaranteed to deliver results once you are up and running, the reality is very different. All businesses need a business plan, developed to reflect their unique circumstances and to help them succeed, regardless of whether they are a franchise business or not. A business needs to have a plan with specific objectives, milestones, responsibilities and the like.
All business plans are different
The content of a business plan is shaped by its purpose. So if the intention is to use a business plan to raise finance, then the plan’s composition will vary from one being used predominantly to decide internal priorities, to allocate resources effectively, or to manage cash flow. Typical uses of business plans in the franchise context include:
So depending on which of the above three business planning events is of most relevance, the content will vary slightly.
What are the key elements of a franchise business plan?
One of the benefits of franchising is that some of the challenges associated with a conventional new business are removed such as decisions regarding product, pricing, branding, marketing collateral, signage, etc. In essence you are acquiring a number of intangible elements which, in theory, should serve to help you reduce your business risk.
However, having these several elements optimised in advance in no way guarantees success. While these elements will help you in terms of brand awareness and will help ensure you have a compelling marketing mix, they still only represent a part of the overall picture.
If you are looking to raise finance, prospective investors will be keen to understand more about the management team, their investment, and also the cash generation prospects. Those franchisees using a business plan to manage their business will be more interested in the creation of a strong marketing plan as well as sales forecasts.
Ultimately it’s about an ability to generate cash
A business relies on its ability to generate cash flow at a satisfactory level so as to prosper. Hence the emphasis many franchise owners place on cash flow generation, sales forecasting, and marketing plans when writing a business plan. The bottom line is that you will need to run a successful business, and this means attracting paying customers in sufficient numbers to generate a return on your investment. Naturally you will be able to receive some support from the franchisor as part of the franchise package. They should also be able to provide access to demographic information to help you with your analysis.
Many franchises are allocated on a territorial basis so you’ll need to have a clear feel for some of the following:
It will be important to set financial goals and forecast the sales levels necessary to successfully manage your franchise. Franchising has become very popular in recent years, and many franchisors will have access to data which can help determine if there is a profitable market within a proposed territory. It will then be up to you to capitalise on this market opportunity by successfully targeting customers.
You will also need to be aware of local nuances as these can play a role in the success or failure of the operation. For example, when Starbucks® initially launched in Japan it was very keen to cater to local tastes and sensitivities. Recognition of these local factors such as menu make up, local branding, consumer tastes and cup sizes helped shape a unique Starbucks® proposition in Japan. Japan, along with the UK, are now key countries in the Starbucks® worldwide operation.
In summary, business planning is good business practise regardless of whether or not the business is a franchise. Even if the franchisor does not insist on a business plan it is recommended that you apply the key elements of business planning to your franchise to help you ensure its success.
This article was originally published on BPlans.co.uk