Spreading your business wings: When is it time to grow?
When an established business is weighing up whether it is time to grow, there are many factors to consider. We caught up with Bivek Sharma of KPMG Small Business Accounting to find out his top tips.
If your business has been flourishing and demand is outpacing delivery, perhaps it is time to grow. According to Sharma, there are three key things to look out for.
the first thing you’re going to look at is whether there’s a gap in the market. Are you looking out there and thinking, wow, Im on to something right now
the second thing to look at is competition. Even if you’re first to market, just because there arent competitors right now doesnt mean there won’t be some later on. it’s about staying ahead of the competition.
and finally is the market ready? You might have a great product but if the market isnt ready you can’t build on it.
To give you an example of a market that just wasnt ready, think back to about ten years ago: people still viewed the internet with some suspicion when it came to making transactions online, but these days hardly anyone would think twice about paying online with their credit card. This has paved the way for disruptive services like booking hotels and cars online, internet banking, and a whole host of e-commerce sites, and for them it’s now time to grow.
If there’s demand for what you’re selling and you can take on the competition, it may well be time to expand. It now comes down to one question can you afford it?
Looking to the future
Cash flow forecasting is pivotal to understanding when it’s time to grow you need to understand when youll need to invest in a new premises, or take on new staff, or fund more research and development. Only when you know how much money you’ve got coming in and how much money you’ve got going out will you be able to properly plan ahead.
three months before you need the cash, you should already be trying to get that cash, explained Sharma.
waking up one morning and realising you were supposed to be starting a marketing campaign on Google AdWords and realising you don’t have the cash to do it because you’ve just had to pay out for a recruitment consultant then it is basically too late.
Failing to plan ahead can mean your business is delayed by months at a time, and it can take longer than expected to get off the ground.
Naturally, the amount of money you need will vary depending on the scale of your expansion, and more ambitious plans require more detailed planning.
If you’re planning to hire a handful of people, you want to plan a couple of months in advance according to Sharma, if you’re looking for an investor for some serious money, you need to be planning around six months in advance.
Investors vs. lenders
When you’re looking for money, you need to know how much you need and what you want to use it for and that should guide your financing options.
If you just need some working capital, you might look at basic loans or invoice financing. A lot of people probably need short term funding but they end up giving away equity, which is daft.
if you’re after major investment for big product development or a big marketing campaign, maybe then you do need to give away some equity. So when you get to that point you’ve got to work out what you think the value of your business is going to be, how much you’re comfortable giving away, and what type of investor you want, explained Sharma.
Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.