Building a scalable financial strategy
A scalability plan can be the difference between a profitable small business staying viable as it grows into a large enterprise and one that goes down the gurgler.
Growth can add new overheads that can impact on a company’s ability to deliver a product or service at the same price because of additional costs eating away at the bottom line.
Partner in Charge Agnes Vacca, from KPMG Enterprise, says managing growth is one of the most critical factors for entrepreneurs considering starting a new business or hoping to take a current company to the next level.
She says successful business growth depends on a scalable business model that will increase profits over time, by growing revenue while avoiding or managing cost increases.
“It’s having a plan so that a business can be ready to accommodate growth. That means, when a company expands and more people and infrastructure needs to be funded, the maximum value is extracted from those costs,” she says.
“You also need to be able to slide the working capital requirements up when there are lots of orders, for instance, and then slide them back down again for the quieter times.
“Therefore, when a business grows it is important to have the right people on board who can make qualified financial decisions.”
Vacca says strategic planning will uncover growth opportunities and identify how the business needs to adjust to accommodate them.
“A business must understand the financial resources that will be required to realise opportunities and the opportunity cost of those resources as well,” she advises.
“Without that insight there’s a big risk of failure or coming across some major hurdle in the future that cannot be overcome.”
Agnes says business with a scalable financial strategy is also more likely to get bank funding or attract investment.
“A business aware of its strengths and weaknesses that is proactive with opportunities and cognisant of its threats is more equipped to prepare a scalability plan with all the boxes ticked,” she says.
“This also makes it much easier to apply for a business loan or speak to investors because you can show that you have done your homework and can confirm the business is working towards being able to capitalise on the value of expansion in a defined period of time.”
Vacca says a client was able to increase turnover from $1 million to more than $30m in 10 years by making strategic acquisitions, rather than only relying on organic growth.
“They are now operating in four locations outside of Western Australia,” she says.
“They have increased their market offering from one to three separate lines of business – servicing three different markets.
“By looking at small but strategic acquisitions and then acquiring into those markets, they have also been acquiring people who are imperative in the market.
“Now they are looking at a potential exit plan but first making sure that all their systems are efficient, and risks are mitigated, so that a new owner could easily take over the business. This will generate the maximum exit price possible.”