After creating your business plan, raising capital and opening your doors, your next task is to make a profit. But once the money is coming in and your operation is sustaining itself, you want to start thinking about growth. How do you achieve growth? The answer is to plan for it, and it is never too early to start.
Q: As the owner, I have my hands in everything, but where should I focus to build a solid foundation?
Before a business can grow, it needs to have a solid foundation. Owners must ensure operational efficiency and their ability to compete in the market before they invest in growth. If that foundation isn’t solid, their investment is at risk.
Here are two things to work on if you’re thinking about organic growth:
Making IT Count
One common lapse of growing companies is overlooking information technology (IT) systems. As sales orders grow and product range increases, properly implemented IT systems can enable more efficient management of sales pipelines and production planning. Owners should assess whether it’s beneficial to bring someone on staff to handle IT, or outsource to a company that specializes in this area and essentially acts as your organization’s IT department.
Minding Your Margins
Even if sales are good, it may not mean margins are growing. Many times, margins still fall due to higher costs from the increased demand for materials and labor. Cost-containment exercises are essential in improving margins. It’s not always easy to know where to make changes first, so if you’re embarking on your first cost-containment exercise, it’s a good idea to work with a professional, such as a trusted accountant.
Q: What do I need to think about before I buy another company to achieve growth?
Another way to fast-track growth is acquisition. Whether it’s to increase market share, gain economies of scale by acquiring a supplier or entering a new market segment, acquisition can quickly change the growth potential for your business.
If you’re interested in an acquisition, here’s what to work on:
Building the Right Team
Acquiring a business is a complex and potentially difficult process that requires many professional skills, from business identification to value assessment and negotiation. Sometimes it can help to assemble a team of advisors to aid in the process. It will make for a cleaner transition and allow the business owner to also remain focused on their own business. Assembling this team may require a certain level of funds to pay for their services. This should be factored into any cost analysis or growth planning the owner is preparing.
Doing Your Due Diligence
Any business considering an acquisition must conduct due diligence on their prospective targets to assess the risks and opportunities of a proposed transaction. Proper due diligence will allow you to spot conflicts of interest, evaluate the merits of the deal, identify potential negotiation issues and help you make the final decision.
Crafting a Post Plan
While post-merger integration work is often complex, it doesn’t need to be daunting. The first 100 days are the most important period in terms of integrating your two organizations. Craft a communications plan to share your vision, manage expectations and motivate employees to embrace the culture.
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