By Bernard Hickey
Here's an introductory chat with Deloitte Partner Bill Hale about the sorts of things that might constrain the growth of a small to medium sized business and what the indicators for success might be.
The short version
A successful growing business watches its cashflow closely, has a good relationship with its banker, is able to use debt to grow, employs the right people and is clear about its strategy.
The long version
"There's a couple of things that are always on the hitlist for most of those growing businesses -- cashflow and talent," Hale said.
"Do you have the right people on the bus. Do you have a good driver of the bus and is the bus headed in the right direction? That might come all the way back to leadership and whether you've got the right owner of the business," he said.
"Those businesses that leap in and don't think too hard about the strategy or the direction of what they're doing, and don't necessarily have the right people on board, are going to make things so much harder for themselves."
Hale said cashflow and access to capital was crucial for any growing business. Deloitte often pointed its clients to their bankers for the cheapest form of capital for growth.
"Debt is good as a cheap source of funding. If you need to go to get your capital from an equity source, then it is more likely to be a painful process in terms of getting other people believing in the business and opening their chequebook to put some equity in," Hale said.
However, this added the constraint of having more people demanding information and returns. This could be good if the investor bought in new skills, but a purely financial investor may bring a painful new level of rigour over the business.
Hale said good cashflow forecasting was a crucial element for any growing business, particularly in its relationship with any banker, who tended not to like surprises.
"If you have some good cashflow forecasting and do the basic things right like getting your accounts in on time then that will help your relationship with your banker," he said.
Finding the right people with the right skills was also a challenge for any growing business, particularly in New Zealand, where there were emerging signs of skill shortages in areas such as Information Technology and Property.
Hale suggested any business looking for the best staff should network within its industry and potentially find those people in corporate environments wanting to work in a private business.
"Some of the really successful growth businesses we see don't necessarily pay their guys more than what's paid in their industry, but they give them the flexibility of what they want to achieve in life," he said.
Key success indicators?
Hale said one indicator of success is the sheer happiness of the business owner and the staff.
"If you go to chat to the owner and they've got a smile on their dial and you can see that all the work they've done over the years and the building blocks they've put in place in terms of strategy and talent and making sure they've got the right niche and being number 1, 2 or 3 in their market, then you see the financial rewards and the smiles."
Less successful businesses tended to have unhappier staff with higher staff turnover rates.
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