Tax & admin · 9 January 2017

Spreading your business wings: When is it time to grow?

Is it time to grow?
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, I’m on to something right now’?”

“The second thing to look at is competition. Even if you’re first to market, just because there aren’t competitors right now doesn’t 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 isn’t ready you can’t build on it.”

To give you an example of a market that just wasn’t 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 you’ll 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.

This last point – deciding what type of investor you want – can be a real stumbling block for many small businesses. Sometimes, businesses are so keen to get the cash they don’t worry about the investor’s interests until it is too late.

“To me, it’s really important that the investor is aligned with the business’ direction of travel,” said Sharma.

“I’ve come across businesses which are ultra-creative and they don’t want to sell the business as it’s about doing something amazing. But then they team up with an investor that’s looking for a turnaround in two years – so all they’re looking to do is push profits. These relationships end up as a complete disaster.”

Regardless of whether you are seeking a loan or an investment, all financers are going to be scrutinising your business to ensure it’s worth their while getting involved. To that end – you’ve got to make sure you’ve got really clear bookkeeping processes in place.

“The thing that kills people is when they leave their financials for two or three months in a row and then they’re just playing catch-up,” warned Sharma. Regular reporting on financials is one of the keys to making sure you can make informed decisions.

According to Sharma, the best thing for any small business to do if they are confused or have questions about how to obtain funding for expansion is to speak to their accountant.


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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.