I am the boss!!!

You have only gone and done it. You waved goodbye to your old boss and have now become the boss.

In this second article, focus turns to growth with some considerations and tips to help your business succeed.

Growing

You have found your first customer, raised your first invoice and been paid. You have basked in the glory of being your own boss for a moment and rewarded yourself with a celebratory fist pump followed by that instant when you decide that starting your own business was the right decision.

Now what? More of the same? This is the perfect opportunity to review the start-up plan. Did you get it right? What did you do well? What could you have done better?

If you feel your business can grow, you are likely to start planning for growth. You will be considering how to sell more of your product or service to grow your business.

You can grow organically by reinvesting the profits over time. You could grow faster by raising finance to fund expansion plans sooner than possible through profits alone or you can consider accelerating your growth to capacity by scaling your business. Whatever you decide is the path for you, getting the financials right is the starting point and should not be ignored.

The importance of financials

Regardless of how big or small your business is, understanding where you are financially is the most important part of running your own business. You may have the best website or the greatest product or service but if you lose money on everything you do, you will soon not be able to afford to either buy the materials to make your products or employ the labour necessary to deliver your service and your business will fail.

If you know your financial position you can make decisions that are right for your business. Most businesses review performance on a monthly basis, but you may wish to keep and eye on your position more frequently, perhaps even weekly or daily, especially in the early days.

Don’t forget that apart from the costs you incur directly relating to the work you do, you may also have overheads to pay that are not going to appear on a job costing sheet such as rent, pension contributions and telephone bills etc. These are very easy to forget and can easily make the difference between a successful and profitable period and a loss that could lead to the business failing.

Financials are your friend. Many small businesses put off doing anything with their financials and stuff receipts in an envelope with an intention to let the accountant sort them out. As tempting as this is, it is not a good idea. Financials will help you very quickly work out if your pricing is right and if you are making or losing money. Financials are the basis on which to make future decisions.

There are many phrases and technical financial terms that can be very daunting for non-financial business owners.  If all this talk of financials makes your head spin, talk you your accountant or advisor, (more on this later). An accountant or advisor will very quickly help you identify direct costs, gross margin, overhead, cash flow and net profit and then help with break-even calculations to help you stay in business.

Cash management

Cash is king. It is possibly a phrase that is overused but there is a reason for that.

Cash really is king. You cannot pay your rent or employee wages with promises. Your suppliers will not supply without being paid and without cash your business will cease to trade very fast.

Knowing how much money you have in the bank, how much is owed, when it will be paid in addition to how much you owe and when you need to pay it is a technique most business owners develop and master very quickly. As your business grows you may need help with this and if you do not employ financial help there are many bookkeeping businesses that will help you prepare monthly or quarterly snapshots with cash flow forecasts to help you understand exactly how your finances are looking.

This information is critical. It will allow you to see in advance those times when cash becomes tight and most importantly allow you to see these issues well before you reach that point. If you know cash will be tight due to a large invoice needing to be paid in 30 days, perhaps you can offer a small early settlement discount to customers that perhaps normally pay a little slower over the next two weeks to ensure you have the money. Perhaps you can discuss longer payment terms with certain suppliers or a loan or overdraft with you bank. While this may not be ideal, it is much easier to have these conversations well in advance of needing the money as discussions or applications always take longer than you would like and you will be in a better position to negotiate payment or borrowing or make alternative plans if you know you will be facing a problem well in advance.

Cash forecasting is not all bad news; it can also be used for positive and profitable purposes. Often suppliers have special offers and encourage you to buy more of something than you normally would. An accurate cash flow forecast will allow you to see if you can take advantage of this offer without this causing a cash flow problem later in the month. This cheaper price may then help you make more money in the future.

Accurate financials allow you to make informed decisions about your business. Imagine being asked to supply your service or product to a new customer who want to pay you 60 days after delivery. This will be your biggest order, but your suppliers and employees require paying within 30 days. Can you afford to take this work? Should you perhaps talk to your customer to shorten their payment terms, so you are paid before you pay your suppliers? If you have accurate financials, you will know if you can afford to accept the initial 60-day terms. This may allow you to secure a new customer and be great business for you. If you don’t know where you are and accept the work, you may run out of money before you are paid and very soon your suppliers and employees will be dissatisfied and may not work for you again.

These financials will also help you to understand when you are able to afford to employ to help you grow or scale your business. As your business grows, you may need to pass some of the tasks you undertake to others to enable the smooth running of your firm or to meet your customer expectations. As you pass these tasks to others, you are delegating, and this is a good thing, (more on this in the next article).

Understanding when and how to delegate

Letting go can be so difficult but if you want to make a success of your business you will have to allow others to share the workload.

When to delegate can be tough for many small business owners. This is your business and no one else can do whatever you do as well as you can do it. This is a common thought for owners, but it is also wrong. There are very few roles that no one else can do so unless you are a specialist in your field, such as a brain surgeon, the likelihood is that you can delegate many tasks within your business.

Why delegate. Perhaps work is taking over your life. Perhaps you work 12 hours a day and have no free or family time. Perhaps your company is so successful, you cannot keep up with demand. All very normal and ideal reasons to delegate. There is one reason that should be considered from day one. Every minute spent doing something that someone else could do, and probably do better in time, is a minute that you are not spending planning the growth or your business. You are not able to look for new opportunities or products if every waking hour is spent on an admin task that could be delegated.

Delegating is a positive business skill. You are removing yourself from some or all day to day functions of your business. This is great news when it comes to selling, (more on this in the next article), as a potential buyer will find your business much more attractive and valuable if you are not needed. Sounds bad when you learn that your business is worth more without you there but in business, that is a good thing.

Delegation is essential if you wish to grow your business. A service provider can only work for the hours they can safely provide that service. If we assume a long 12 hour day, you can only invoice for twelve hours, however, if you employ five staff to do the same thing and they work for eight hours a day, you are now billing 40 hours rather than just 12, rising to 52 hours if you decide to continue doing your normal shift.

Some decisions are easy; if you are not an accountant but you want your finances to be correct, you hire an accountant or an accounting advisor. Other decisions are not so easy. You may feel that you are the only person who can deliver the product or service that your clients expect. Your clients like you, they trust you and you are worried that they will not continue as clients if you are not the regular contact. So, what do you do? The answer is to plan, plan and plan some more!!!

If you are honest about your own strengths and weaknesses, you will be able to find someone who can do what you do just as well. A good manager identifies the skills and attributes required and recruits with these elements in mind. 

Is the task something that can be delegated, the best way to help you grow or scale is to delegate it.

How do you go about delegating?

Understand the task and record the key elements. This could be a call to a customer on a Monday to offer stock replenishment after weekend trading or raising invoices each week for works completed. What are the expectations and targets?

Consider the tools or information needed to do the task. If the tools are not available or the information needed is incomplete, the task is not ready to be delegated. Go back and solve this part and once the tools or information are available, review the task again.

Select the team member or recruit someone who can undertake this task. Ensure they have the skills and time to be able to undertake the task. Be sure they understand exactly what it is that you want them to do. If there is a strict method perhaps for regulatory purposes, be certain they understand how it the activity must be done and recorded.  Consider additional training if required.

Explain the task fully. Why is it done, how it affects other people or activities, when it must be done. A clear understanding of the purpose and deadline adds value and reduces confusion. 

Communicate expectations. By clearly stating what is expected you can agree a method of measurement to manage the task. Perhaps this may be something as simple as opening the shop on time every day or agreeing key performance targets the task must meet.

Support. You cannot delegate and then immediately disappear. The team member will be keen to ensure they are doing things right so be sure to monitor, support and coach as required. Expect mistakes and be forgiving and remember that if your instructions were not clear enough or essential information was missing, the team member probably made their best effort and is unlikely to have deliberately made an error.

Review and enhance. Over time, review the task to the agreed objectives. These may change and be open to ideas that could enhance the task or have a wider impact on your business.

Delegating will help release your time to help grow your business. But what if your product or service could grow faster. How do you do that?

Scaling your business.

Scaling is the process of growing your business and profits faster than by organic growth by ensuring you have the right staff, finance, processes, technology and partners.

If you are considering scaling, it is likely that you are doing OK. You probably have a profitable business and you have a good control on your finances. You may have a team (large or small), and you have delegated tasks for your team to undertake. You probably have a process or system in place to manage whatever you do, and you have a range of suppliers and partners or contractors that support you and your business.

The art of scaling is to consider how you can extend your product or service to a far wider and larger market which may result in a substantial turnover and profit increase faster. Scaling should also retain your expected levels of product or service quality.

Scaling is different to growth due to the speed and potential rewards. To grow, perhaps you need to employ a new sales person but their salary will increase your overhead and it is possible that results will be slower in the early period of employment that may result in the increase in business only just meeting the new employee cost. Scaling is a process of adding revenue and profit far faster and cheaper than growing. For example, you may automate your sales process and combine this with a targeted marketing campaign and appoint regional dealers to sell your product rather than employing reps. Numerous dealers could be appointed and when the increase in revenue arrives, the costs for achieving this increase are proportionally much lower and the business has grown in both turnover and profits by scaling.

Outsourcing is a great way to scale a business. Renting part of a warehouse with the ability to take more space as required is normally cheaper than the liability of the full facility and the same is true with staff. Perhaps you can pay for only the time spent picking and packing your products or only pay for the days when suppliers worked for you. Using suppliers to fulfil your orders may reduce your sale by sale profit but allow you to fulfil many more customer orders and ultimately make a higher profit without the fixed costs of employees or overheads.

Pick your partners carefully. Will they be able to meet your requirements regardless of variations? Can they react as you will need them to and offer comfort that your business will be treated exactly as you would treat it yourself? What service level agreements do you need and how will you monitor them? There are many considerations when choosing partners as these partners will often be representing your brand to the customer.

Having the right team around you that understand your goals and values will be a challenge. Not everyone works in the same way or has the same work ethic as you have. Choose employees, team members or partners who fit your business character in addition to having the technical abilities essential to undertake their role. Ensure all team members are motivated, supported and well rewarded as the plan is delivered as these team members will help shape and deliver your business in years to come.  Pay attention to client and employee feedback using sites such as Glassdoor to ensure your team are happy and consider that many employees now value flexibility in both working conditions and remuneration. Regularly consider your offering. Can you do anything different to give you an advantage?

Your business processes must be reviewed to ensure they will be relevant and useful as your business grows. Everything from your customer database, through your contracts and invoices should be looked at. Perhaps you can simplify the processes to ensure any new staff or partners can use your system. A handwritten order form or invoice should be replaced with an electronic version. Outdated paper records could be made electronically to which facilitates access from anywhere and remote working from your team.

All processes required should be considered and can be understood and used by all users. A process that reduces human error by automating functions will help guide your employees and partners to do the right thing. Just because you don’t automate something today, certainly does not mean this cannot be automated tomorrow.

Most importantly finance. To scale your business, you will need to manage your finances very carefully and even consider raising finance to fund your plans. Perhaps you will need to make an investment in your IT system so that functions can be automated. Although this may be a higher initial cost, the ongoing profits generated from your well-considered and implemented processes will pay dividends.

What can go wrong when growing or scaling?

Anything and everything!! Business is not easy. If it was, everyone would be in business and living the dream. Business has many ways to trip you up and consideration should be given to a wide range of things that could cause you problems.

Some issues can be expected and planned for easily. What if you clients don’t pay? Consider credit insurance if you offer a line of credit in addition to undertaking financial checks before offering delayed payment terms. A customer non-payment, although inconvenient, is then unlikely to become business critical.

Have I enough money? Can I get enough money? Cashflow is king; we know that and have looked at that in this article already. Without good financial planning, you may run out of money and this could result in running out of business!! With good financial planning and considering cash flow, your business can thrive or at the very least identify issues before they become fatal.

Do I have the right insurance? There are many independent brokers who can help ensure you have the cover you need. Of course you have to pay for this cover but once you consider the options and value in perhaps paying for business interruption cover in addition to the regulatory cover that is mandatory to trade, if you did suffer an issue that interrupted your trading, your business is protected.

Accreditations; do I need them? Industry accreditations may be essential, legal or optional. You must be trained and accredited to work in many industries and in others a compliance may be all that is required. You should consider what is needed in your market and obtain any relevant accreditations that are required.

Team. Do you have the skills needed to delivery your goals? Identify what skills you are lacking and plan to fill the required roles with suitable people.

Offering. Is your product or service offer meeting your customers’ requirements? Be honest; what could you add or do differently to meet your client requirements better. Do you have a product or service offering that is too wide? Should you streamline? Look at the results, are you making money

on everything that you do, or should you perhaps remove low profit offers that are not essential?

Many things can go wrong. This should be expected. There is a phrase that says, ‘if it can go wrong, it will’ and this is never truer than when you are in business. You should always be looking for the areas where things could go wrong and put processes and procedures or team members in place to prevent these issues potentially threatening your business.

A business continuity or disaster plan will help you consider how to deal with the prevention and recovery of business-critical data and activities and is something that should be undertaken by every business.

In addition to a disaster plan, one way to help visualise the issues you may face is to undertake a SWOT Analysis. SWOT stands for Strengths, Weaknesses, Opportunity and Threats and looking at these elements honestly will help you visualise your business and help you to form a plan to manage each element.

A SWOT analysis does not have to be lengthy and can easily be drawn on a large sheet of paper split into four sections with each element in one of the sections. Be honest when completing a SWOT analysis; if not having an accreditation is costing you business, record this in the appropriate section. If a competitor beats you to every opportunity for a certain product or service within your offering, record this.

Very soon, you will have a bird’s eye view of your business and you will be able to consider how work in the Weaknesses, Opportunities and Threats areas will help you strengthen your position. Plan to turn the elements contained in these sections into your business plan. You may need to look at employing cover for a key employee or reviewing your pricing or service levels; you may need to review a product or service offering but you are doing this from a position of strength as you have the ability to make the necessary changes to fix whatever you have identified in a timescale to suit you. Often, if such considerations are ignored, they quickly become forced upon you by your customers and this may reduce your ability to resolve on terms that are acceptable to you.   

Review yourself.

Are you limiting your business opportunity by doing more than you should? There is a time when you must move from working within the business to becoming the CEO (Chief Executive Officer) and driving your business.

Most businesses require the owners to undertake many roles ranging from opening the post to sending the invoices. This is completely normal but can limit the potential if it is never changed. You will only be able to work as hard as you do now, and profits will be limited.

Effective planning combined with delegation will allow you to grow or scale your business as you desire. You should plan yourself out of a role. May sound silly but a business that can operate without its owner is worth more than a business where the owner is central to everything. More on that in the next article.

Outsourcing for help.

In the early stages of running your business, it is likely that you will fulfil every function the business requires. Whatever is required to deliver your product or service becomes your job. This means you will be the person who undertakes the prospecting, answering the phone, taken enquiries, selling and then raising the invoices and ensuring you are getting paid.

As your business grows, the challenges you face are not directly related to your product or service. You may be employing people who have issues in their work or personal lives that impact on their ability to work. You may need finance to purchase larger volumes of raw materials to fulfil orders.

Any issue can quickly become a major headache and could impact on the viability of your business if you ignore it and hope it will go away. In business, issues tend not to go away, they escalate!

Imagine not having the money to buy the raw materials you need to meet the delivery date for the large order you received or having a computer hardware crash that wipes out all your customer and accounting records. These events could have been foreseen and planned for resulting in the issue not occurring in the first place or the issue not becoming an issue.

A cash flow forecast prepared during sales negotiations identifying that you may need some additional working capital to buy materials if you secure the work which was used to arrange the necessary overdraft or finance to fund the order would have removed the raw material problem and a working and tested data back-up could have easily restored all your information very quickly onto a new machine resulting in no loss of date following a hardware failure.

Sounds easy doesn’t it. This is not always the case. In the real world, your time is spent running your business and these important elements may be something that sits on the ‘to-do’ list but never quite reaches the top.

Outsourced IT or computer support should have guided you towards ensuring your critical information was stored and backed up correctly. Outsourced financial support would enable you to prepare cash forecasts necessary to arrange the necessary finance to meet your requirements.

Embrace outsourcing.

Do not be afraid to outsource. Often outsourcing is cheaper than employing a specialist within your team who may not be utilised in this role on a regular or full-time basis. Additionally, these specialists are often up to date with current law, trends and best practice and although their fee will be comparatively higher that a full-time employee undertaking the same function, you pay only for the time you need.

The role of an advisor.

An advisor is similar but also quite different to an outsourced specialist. Advisors are usually experienced business professionals who have achieved success or successes and should have a proven track record to prove this ability. Advisors may have a business speciality such as finance or sales but also due to their previous business experiences, they should be able to consider the business as a ‘whole’ and will understand how each element of your business interact together. 

This is the most critical part of the advisor’s role. Understanding how decisions in one aspect of your business could have implications in one or more other areas. For example, a reduction in sales price may increase sales volumes which is great but this will require more stock or raw materials and this stock or raw material may be needed to be paid for before the benefit from increased sales is received. If additional stock or raw material has not been secured or manufactured, your customers may become dissatisfied with an extended supply or manufacturing delay and any benefit gained from the price reduction may be counteracted by loss of customers or reputation.

An advisor with previous experience of growing, scaling and ultimately selling or exiting a business will have the ability to guide and support you during these decision processes and their advice may be invaluable. They may challenge you to justify your decisions and ensure you have considered all implications in every part of your business in advance. An experienced advisor has usually made errors in their own career that can be avoided given the benefit of hindsight.

Advisors can be very flexible and contracted just for specific projects or for more general overall support on short or longer timescales. As advisors are unlikely to become employees, this supplier type relationship allows you the benefit of gaining huge experience and maximum flexibility with the ability to vary the work requirements as required.

Advisors fees are likely to be proportionally higher than an employee but remember you pay for shorter periods of time which may be as little as a day or two each month. Additionally, their experience, knowledge and ability to use hindsight from earlier in their careers may save you considerably more than their fee.

A word of caution; there are plenty of advisors who put themselves forward as experts in a specific field or generally in business. A quick search engine check will confirm their abundance. Before you engage an advisor, it is critical to satisfy yourself fully and ensure the advisor has the necessary experiences and knowledge to add real value to your business. Take up references and talk to some of the businesses they have worked with previously. People embellish their CV’s; expect the same with advisors.

Do you need an Advisor or should you consider a Non Executive Director (NED)?

A Non-Executive Director is often focused firmly on board level matters and consider the Direction on your business. A good NED will support you and your management team, challenge your thinking, guide you towards best practices and use their knowledge and experience to help you maximise shareholder values.

Any business seeking to grow, scale and ultimately achieve a sale or exit should consider whether a long term NED role would provide greater stability over a longer term rather than employing Advisors on shorter term or project by project basis.

A NED is often part time, perhaps as little as a day or two a month and are paid for the time they spend on your business. NED’s do have the same legal requirements as Executive Directors and it is important that enough time is given to enable them to undertake their role correctly.

The UK Corporate Governance code states that NED’s “should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account."

The Instutute of Directors clarifies the role of a NED further by stating “All directors should be capable of seeing company and business issues in a broad perspective. Nonetheless, NEDs are usually chosen because they have a breadth of experience, are of an appropriate calibre and have particular personal qualities. Additionally, they may have some specialist knowledge that will provide the board with valuable insights or, perhaps, key contacts in related industries or the City. Of the utmost importance is their independence of the company management and any of its ‘interested parties’. This means they can bring a degree of objectivity to the board's deliberations, and play a valuable role in monitoring executive management.”

The IOD sets out the key responsibilities of a Non-Executive Director in the following paragraphs. Although written with an eye on larger listed businesses, the role is identical in smaller businesses and on behalf of owners and shareholders.

Key responsibilities of a Non-Executive Director.

Chairmen and chief executives should use their NEDs to provide general counsel – and a different perspective – on matters of concern. They should also seek their guidance on particular issues before they are raised at board meetings. Indeed, some of the main specialist roles of a non-executive director will be carried out in a board sub-committee (particularly the remuneration and audit committees), especially in listed companies. The key responsibilities of NEDs can be said to include the following:

Strategic direction

As ‘an outsider’, the non-executive director may have a clearer or wider view of external factors affecting the company and its business environment than the executive directors. The normal role of the NED in strategy formation is therefore to provide a creative and informed contribution and to act as a constructive critic in looking at the objectives and plans devised by the chief executive and the executive team.

Monitoring performance

Non-executive directors should take responsibility for monitoring the performance of executive management, especially with regard to the progress made towards achieving the determined company strategy and objectives. They have a prime role in appointing, and where necessary removing, executive directors and in succession planning.

Remuneration

Non-executive directors are also responsible for determining appropriate levels of remuneration of executive directors. In large companies this is carried out by a remuneration committee, the objective of which is to ensure there is an independent process for setting the remuneration of executive directors.

Communication

The company and its board can benefit from outside contacts and opinions. An important function for NEDs, therefore, can be to help connect the business and board with networks of potentially useful people and organisations. In some cases, an NED will be called upon to represent the company externally.

Risk

NEDs should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible.

Audit

It is the duty of the whole board to ensure that the company accounts properly to its shareholders by presenting a true and fair reflection of its actions and financial performance and that the necessary internal control systems are put into place and monitored regularly and rigorously. An NED has an important part to play in fulfilling this responsibility, whether or not a formal audit committee (composed of NEDs) of the board has been constituted.

Follow this link to read the article in full - https://www.iod.com/services/information-and-advice/resources-and-factsheets/details/What-is-the-role-of-the-NonExecutive-Director

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The next article will focus on selling your business.

Author – Andrew Kime, January 2020

www.adkconsulting.co.uk

www.linkedin.com/in/andrewkime