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Top Ten Tips for successfully growing your business
We all hope the time for the tightening of belts is coming to an end and the time may be right to start looking at sustainable and profitable business growth. There are great opportunities for the brave to take advantage of the continuing economic uncertainty and get ahead of the competition through expansion by acquisition, at a time when business values remain low and pressure mounts on banks and funds to invest and lend money to SME’s.
Finding investment, through venture capital, private equity or debt funding, is the key step in this process and these top tips highlight the common areas of concern for funders which often cause the cost of investment to rise or funding deals to fall through. With proper planning and sound management you can make your business a great opportunity for a prospective investor.
1. Consider the Management Team.
Whilst the management may have concentrated on winning business through sales and cost savings, is the team in a shape to allow growth? Is it over reliant on the owners? Consider expanding management, for example by recruiting an interim FD to run the rule over the finances to see if there is anything a prospective funder would not want to see!
2. Protect what is yours!
Take, for example, intellectual property rights. Your staff or third party contractors may have had a hand in creating the rights in bespoke software, designs, logo’s, know-how, patents. Make sure that any key IP is properly protected by getting formal assignments of rights in commercial contracts and in employment contracts.
3. What are your property arrangements?
If leased, is the title registered; if owned by connected parties, as is often the case with small businesses, is there a formal lease in place? If not, deal with this now before a third party funder comes along with its own interests. If leased, have you made proper provision for dilapidation and redecoration costs required by the terms of the lease. Any potential costs and liabilities should be provided for.
4. Comply with regulations.
Sounds obvious, but check if your business has complied with regulations, such as managing asbestos, health and safety, waste disposal, discharge permits, data protection registration. Of course there are many industry and property specific licences and permits, but a quick audit of what you should be complying with is a good starting point.
5. Check your employment contracts and policies.
Are your employment contracts up to date and in good order? A funder will look to see that your key staff have appropriate notice period and restrictive covenants. For owner managers in particular contracts are often not in place. Again, think about this now before third parties with their own thoughts on remuneration start running the rule over the business. Make sure policies and procedures are up to date (e.g. compliant with age discrimination legislation) and thorough (e.g. a proper disciplinary procedure).
6. Manage shareholders.
What if the owners of the business have different opinions on strategy. Do you have a shareholders’ agreement setting out how decisions are made. Growth can often require a reorganisation of the structure of the business which will, without an agreement in place, require all shareholders to agree. This can be time consuming and difficult. Look at making sure the majority shareholders have good control, provided the minority are not unfairly prejudiced in terms of protecting value.
7. Manage debtors.
Whilst this may have actually been your focus in recent times, we all know that good management teams have been looking to manipulate their creditors and push payment terms to their limit. Any funder will expect this, but keeping a regular check on debtors and making sure you know the reasons why payment terms are being stretched evidences the fact that you practice sound financial management principles.
8. Manage customers.
Any funder will be keen to see a secure, regular source of income. Ideally this means longer term contracts with minimum commitments and clearly defined pricing. Regular orders without contractual certainty do give cause for concern. What about terms of business applicable to purchasing goods? Are you bound by buyer or seller’s terms – the difference can be allocation of risk, payment terms, product indemnities and liability issues. Check the position and try to ensure your own terms of business apply.
Maintain and keep in order financial and taxation records, customer and supplier records and ensure that all contracts with third parties are in final form and properly signed off by all parties concerned. Often businesses think they have binding contracts in place but, when scrutinised, it becomes apparent that eyes have been taken off the legal matters once negotiations over commercial terms have concluded.
Check the tax returns and have your accountant or FD look over the last couple of years. Have all benefits been properly accounted for and taxed appropriately under PAYE and NI? Common problems include expenses, mileage claims, benefits in kind, payment of regular dividends where directors have low salaries etc. HMRC’s compliance unit is one of the few to receive additional government funding in recent years and a tidy ship will not only keep funders happy, but keep the tax man at bay!
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