Despite the grinding winter weather, many British businesses are positively spring-like in their mood, brimming with optimism about the year ahead. After several years of consolidation and being in survival mode, SMEs are voicing ambitions to grow, with plans to increase investment in machinery, equipment and premises, to develop new products, and even to start exporting goods overseas.
But there are many things to consider when thinking about business growth. Where will you find the money to fund expansion? Are you really on top of your company’s finances? Are the right people in place to lead the firm forward? Quite simply, is your enterprise ready?
There’s no doubt that growth is on the agenda for a lot of small firms after a period of economic uncertainty during which many pulled in their horns. Small and medium-sized manufacturers are planning greater spending on their buildings, machinery and plant, according to the recent SME Trends survey from the Confederation of British Industry. More than half of all SMEs plan to invest in growth in the first half of 2014, research by Freelancer.co.uk has found. And 45 per cent intend to achieve this growth by selling their products abroad for the first time, using the internet. This latter group could have the right idea – a recent Government report about growing micro businesses calculated that digital technology and online channels could unlock £18 billion worth of revenue for UK firms.
However, blind ambition is not enough. Ask yourself whether you’re prepared to spend the money necessary to make growth a real possibility. Only 18 per cent of SMEs are planning on taking on any new staff this year, just 16 per cent have plans to invest in research and development, and less than one in four intends to increase spending on sales and marketing, according to accountant Baker Tilly. Without investing in such vital elements as these, it’s difficult to see how some SMEs hope to realise their growth expectations.
For those that are on the hunt for growth finance, there are a number of potential avenues that business owners might pursue.
- High street banks – despite conventional lenders’ continued reluctance to offer borrowing to small firms, many businesses still turn to their bank first when looking for funding.
- Alternative finance, including peer-to-peer funding, crowdfunding, or short-term lenders such as Boost Capital – more business owners are turning to innovative forms of funding since bank borrowing has dried up, and these players are changing the face of business finance.
- Invoice financing – asset-based lending secures loans against the debtors or assets of a company, and is popular with many SMEs, since funding capacity also increases in line with the growth in a firm’s working capital.
- Angel investors – high-net-worth individuals with business experience invest in firms with genuine growth potential in exchange for equity. They can also provide advice and mentoring to management.
- Government funding and grants – capital allowances, which firms can deduct from their taxable profits to be used for investment expenditure, the Enterprise Investment Scheme, which offers tax reliefs to investors buying in to small unquoted companies, or schemes like the GrowthAccelerator programme, which offers mentors and training to fuel growth, all aim to help small businesses expand, though many SME bosses admit confusion about the number of projects in operation.
When you’re seeking funding, most lenders will want to see that your business really has what it takes to succeed in its hoped-for expansion. Even if you have enough capital reserves to finance your growth plans from company coffers, you should still ask yourself these key questions to determine whether your enterprise is ready for a surge of new business.
- How strong is your management team? Are they as one in terms of the proposed plans for the company, and is there one clear leader? Is anyone likely to put up any objection to acquiring funding? Many entrepreneurs are resistant to giving up equity in exchange for investment, hating the idea of ceding any control over their operation. But involving a business angel, for example, can be a valuable way to access funds, as well as commercial experience and expertise. Be honest in asking if the people leading the business are qualified or experienced enough to take on the challenges ahead – even if it’s you.
- Does your business have real growth prospects? You should be able to demonstrate that there are sufficient new customers to fuel your planned business expansion. Do you have a unique selling point? The unfortunate reality could be that, if you operate in a very competitive market, your true growth potential may be limited.
- Do you have a sensible marketing strategy? What is your route to market, in other words, how will you get your product to the customer? Many businesses obsess about the detail of how they’ll develop a new product or technology, but fail to give sufficient thought to how they will market it, distribute it, or provide the necessary customer service.
- Are your financial projections realistic and thoroughly calculated, or are they based on flimsy assumptions? You need a strong business model that will show how you’re going to make money from this project, as well as having comprehensive and credible information about the market in which you plan to operate. This should all be articulated in your business plan, which serves both as a template for you and your colleagues of your goals and how you will achieve them, and as a document to ‘sell’ the company to any potential investors or funders.
Think about how and where you might win new customers, and whether there are markets that you could yet exploit both at home and abroad. And while you’ve got your eye on new opportunities, be careful not to forget about your existing customers. They could yield more business in the longer term, so reinforce these relationships by talking to them and asking what they really need. It’s possible that you could diversify into an area that is very complimentary to your existing offering with comparatively little effort or upheaval.
SMEs often complain that they can’t get their hands on the finance needed to grow. But too many firms develop ideas for expansion, but are ill-prepared for their execution. If you can’t articulate precisely how you’ll bring about your intended growth, it may be time to go back to the drawing board before overstretching yourself and potentially damaging your existing operation. Growth is a good thing, both for the UK’s businesses and for its economy. But it takes proper planning and research, adequate resources, and the right person at the helm. With all of these magic ingredients in place, you could find that 2014 is the year to take your business to the next level.
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