If your business has survived the start-up phase, you are likely to find yourself in the position of running a growing business. This period in a business’ growth typically lasts between two and ten years and brings a whole new set of challenges and opportunities.
In my experience, businesses and the business lifecycle can be defined by the acronym ‘SAME’: Start-ups/Accelerators/Mature/Exit. What does the Accelerators phase look like for the typical business owner?
What defines a growing business?
A typical growing or accelerating business has been established for at least two years, having survived the critical start-up phase. The company will probably still be small, with fewer than five members of staff and the proprietor will most likely still be ‘wearing many hats’ and performing many roles. That means the business is still overly dependent on the owner and could not survive if he or she was not present for whatever reason.
A growing business can sometimes still be defined as a ‘lifestyle business’. This describes a company that can fund a good income for the owner but has little or no lasting value. If you want your business to fund your pension, entering the growth phase would be a good time to consider how you can ensure it retains value for you in the future.
What are the opportunities in this growth phase?
Moving from the start-up to growth phase gives you, as the owner, the ability to leverage the business’ assets and people to reach your goals, for example achieving a greater economic return.
There is now potential to achieve economies of scale and to reach new or emerging markets. Diversification could provide you with greater financial security, beginning the process of adding real value to the business for the future.
Being a growth business can also provide you with new funding opportunities. You may be able to access particular grants, which are tied to innovation for example. Having established a track record during the start-up phase, you are likely to be more attractive to angel investors than you were as a start-up. Your accountant should also be able to advise you which on tax reliefs you can access, such as R&D tax credits.
A key element of the growth phase is developing the business to the point where it can function without the business owner. As you grow your team, you may be able to enable greater specialisation of your staff.
What constraints do growing businesses face?
The growth phase is often exciting but it can also be risky and I have seen business owners over-stretching themselves. There is potentially greater pressure and increased time commitments for the business owner. I also often see growth businesses setting over-ambitious targets.
Many ambitious businesses face a lack of working capital or difficulties in accessing finance to adequately cover the scaling up of activity they want to achieve. There is a real risk of ‘overtrading’, when the business increases activity but not profitability.
As a business grows, it often quickly needs new employees with specific expertise and owners may face difficulties in recruiting suitably trained staff with the required skills. Depending on their geographical location, they may also struggle to acquire suitable premises as their needs change.
How can a business owner manage the growth phase?
The growth phase is challenging but, with the right advice, you can make the most of the new opportunities it presents. That is why it is crucial to have a trusted advisor working alongside you, to bring focus to the business. Ensure you also leverage their professional contacts to support you as you expand your business. It is also important to develop a good relationship with your bank and discuss your changing finance requirements.
Prepare a business plan detailing the anticipated growth of your business and the likely obstacles and pinch points along the way. Ensure your plan is not over-ambitious: impose reasonable, achievable goals.
Having the right accountant, who can offer advice on which grants and tax breaks are available to you, will be invaluable during the growth phase. Corporation tax can catch business owners unawares so keep a reserve account with sufficient funds to pay the liability when it falls due.
Keep good records, preferably cloud based, so management accounts can be easily produced and used to manage the business effectively. This will help your staff and your accountant and other advisors to keep up to date, saving you time.
Perhaps most importantly of all, invest in quality staff, even if they cost a little more to attract and retain.
Patrick Tigwell, Partner