Businesses recovering from floods in Queensland and Victoria need to beware of the risks of growing too fast, according to Michael Fingland, managing director of business turnaround specialist Vantage Performance.
While part of the rebuilding process has been about making sure struggling businesses are still viable, other businesses that have picked up big contracts in the aftermath also need to watch out, he said.
“These are firms that are making a profit on paper but outgrow their finance facilities and run out of cash. They may have committed to large contracts they can’t fulfil because of a lack of cash flow,” he said.
At risk were businesses in the mining services, civil contracting and labour hire industries, noted Fingland.
“Mines that were shut during the floods have started rebuilding and there’s lots of catchup, also with civil contracting and the myriad of roads, buildings and bridges that need repairing. Labour hire is a business that can rebound like a rubber band after low periods so it is one to watch for managing risks of fast growth.”
Businesses commonly outgrew their staff and management capabilities. When systems don’t keep pace the business suffers from “poor customer service, orders not being fulfilled, [which] eventually ends in a loss,” he said.
“If you are trying to grow your business, grow everything in tandem—this includes the financial facilities, internal systems and controls and staff capabilities.”
To manage business growth, business owners need to consider what parts of the business are crucial to upgrade; for example, if you only have an accountant, you may need to put in place a financial controller or a CFO to deal with the changes.
It is also important to plan for growth using a projection of six to 12 months, including key risks and milestones and outlining growth forecasts and cash flow along with a strategic growth roadmap.
To creat a strategic growth roadmap:
- Review management forecasts to determine what finance facilities will be needed to fund the business during the growth phase;
- Identify key issues and risks that may hinder management from achieving growth plans;
- Identify requirements for internal systems, controls, communication, financial reporting and people;
- Decide on the appropriate management structure for each major milestone;
- Assess if an advisory board would be a worthwhile structure to put in place to help guide the management team; and
- Develop a comprehensive strategy to achieve management’s stated growth strategy in a controlled and managed way.