Business ownership: A focus on growth
ARTICLE | February 08, 2023
Authored by RSM US LLP
A focus on growth
This is probably the most thrilling and daunting stage you’ve encountered yet. You’re running on all cylinders now, investing on fronts like the sales process, manufacturing and production, and scalability. The business has reached a point where it cannot operate without structure, process, and expertise. Below, find answers to common questions business owners ask in the growth stage.
Questions and answers:
Q: What is my growth strategy?
Most organizations rely on a mix of organic growth and growth by acquisition. It’s important to formulate and evaluate a strategy and stick with it. Don’t chase value for value’s sake. If organic growth is your route, an investment in data analysis may pay off in the long run. If acquiring, realize that each acquisition will require due diligence and integration. Rapid expansion requires analysis to ensure that it is a profitable expansion. Always be open to where you might make changes to capture value.
Q: Do I have an airtight leadership strategy and succession plan?
No business owner can be an expert at everything, and, at this point in your company trajectory, tap specific individuals to take on leadership roles across the enterprise that dovetail with their skills and passions to ensure a solid management structure. Also, be open to bringing in outside advisors to evaluate your team’s ability to take the organization to the next level if you were gone.
Value is based on an organization’s ability to create additional profits after key leaders exit, which is why succession and contingency planning are important.
Q: Is now the time to consider outsourcing key department responsibilities?
While you may have had success up to this point tapping in-house talent to cover basic functions, you might now benefit, for example, from a more sophisticated finance and accounting skill set. Such a team can run complicated projections and ROI analysis for a possible new market penetration, produce detailed budgets and analyze forward-looking business intelligence. Consider outsourcing to derive better strategic value from specific, important departmental functions.
Q: Do I understand the changing regulatory footprint?
Each new customer can create new regulatory or compliance exposure. As your company grows these changes can be rapid, and if left unchecked can lead to pain and financial loss. Make sure that your growth plan includes evaluation of new markets so you understand your exposure, the true profitability of these transactions, and are ahead of regulatory requirements. Planning will help you avoid unpleasant surprises.
Q: Is my entity type still optimal?
Although you began thinking about what company entity type works best for your business at startup, and likely cemented your type during launch, entity becomes critical during the growth phase when many companies see their first profit. That coupled with the need for investment dollars and increased regulatory complexity may necessitate a shift in structure priorities. And it will need to be revisited again, since goals and laws continue to change. Entity type is one of those evergreen issues that should always be dancing at the edge of your consciousness.
Best practices for owners of growth stage businesses
People, process, and technology
- You can’t do it all yourself anymore.
- Don’t get over your skis.
Focus is a “nice to have” at launch. In growth mode, it is a necessity. Companies will often sell at some point during growth mode to capture the value for their owners. Value is created in many ways, but owners that are too involved in all aspects of the business often decrease the value as the enterprise can’t operate without them.
Value is created in many ways, but owners that are too involved in all aspects of the business often decrease the value as the enterprise can’t operate without them.
Understand what you are good at and if you are the right person to lead the organization into this next phase. Also, work to surround yourself with the right people to compliment your weaknesses. It usually requires outside advice to assess this honestly:
- Understanding your weaknesses and the most important roles you should take today and tomorrow.
- How to compensate those individuals tapped to help the organization reach its goals. What compensation is right for these people, and what sort of incentives are being offered in the market?
Growth mode is going to require the organization to hit on all cylinders and, often, decentralize decision-making.
In some situations, you may find out at the last minute—or when you file your taxes—that a new customer adds another state to your regulatory footprint, adding unexpected costs that make that customer unprofitable. The data you started collecting during the launch phase can help you build models to understand trends in customer buying behaviors and forecast profitability more reliably.
Decentralization will require communication and teamwork to ensure the correct decisions are made and that nothing is missed. A common issue in fast-growing companies is understanding the impact of a new customer on the organization. Without collaboration among sales, operations and finance, you won’t fully understand the impact of this new customer and whether the sale will be profitable.
Small businesses can scale faster and compete with bigger players in the market with the right technology solutions.
Growing businesses are especially vulnerable to cyberattacks as criminals seek to exploit perceived vulnerabilities. A cyberattack is not only disruptive, but it can also invite lawsuits and tarnish the brand. At its worst, it can even bankrupt a company.
Many growing businesses do not have the internal resources to fortify their defenses—or cannot afford them. Outsourcing cybersecurity responsibilities is often a viable and sound strategy.
Now’s the time to invest in enterprise resource planning (ERP), customer relationship management (CRM), business intelligence, data analytics and other critical technologies that provide visibility into operations and customers and help forecast and act on data insights. Determining a cloud strategy at this time can help optimize your technology investments. Advisors can connect you with the right professionals—in finance, technology or human resources—to fill in gaps by outsourcing where it makes sense.
Focus on these important details
Pay attention to state tax liabilities:Things are happening quickly. Paying attention to new state tax liabilities can be key to controlling your regulatory and tax footprint.
Increase ROI of your investment: If you’re planning to grow inorganically, thinking strategically can help to increase the ROI from your investment. Structure, placement and existing risks all enter into these decisions.
How do entrepreneurs address the various lifecycle stages of business ownership?
Owning a business takes a certain confidence and grit. All owners are different, but all face similar challenges. Our business ownership lifecycle ebook shares insights gleaned from helping business owners face these challenges head on.
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This article was written by RSM US LLP and originally appeared on 2023-02-08.
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