By Kirk W. McLaren
Businesses that aim to expand this year could be stymied if they fail to account for common obstacles that get in the way of growth.
Those obstacles are winning new customers, keeping existing customers, gaining access to capital, overcoming low financial performance and having the right people and capacity to deliver.
Before one’s business becomes mired in one or all of these, consider what can be done to surmount them.
Winning new customers
Businesses try to attract new customers in any number of ways, some effective and others less so. Unfortunately, the ineffective methods become thieves of time and resources, giving leaders little or nothing of value in return. They should examine efforts closely to make sure the return is worth the investment. Not long ago, my firm encountered a situation that serves as an object lesson for this when we analyzed a company’s inside-sales call center. The business brought in new customers by having them call in. But was that more efficient than just allowing the customers to sign-up themselves online? It was not. The additional step of calling someone proved to be a deterrent. The company reviewed the findings and went to work, improving its web-based technology to make it even easier for customers to sign up.
Keeping existing customers
Growth can’t happen if leaders don’t make some effort to bring in new customers, but in the process, they don’t want to alienate existing customers by taking them for granted. And they especially don’t want to alienate their best customers, so they should put the 80/20 rule to work. That rule is based on the premise that 80% of a company’s revenue comes from just 20% of its customers. Figure out who those 20% are because that’s where retention efforts should focus.
Proactively gaining access to working capital
Growth usually requires money because businesses can’t add new locations, new equipment or other resources if they lack working capital. But convincing lenders that a business is a good bet isn’t always easy. This is where positive cash flow can be crucial. A lender is going to look more favorably on a company with a stellar financial picture than on one that appears to be hobbling around on precarious financial ground. But if a business doesn’t already have positive cash flow, how does it get there? A good first step is making a 12-week cash forecast, listing every payment that’s expected to come in and go out. If what’s going out is more than what’s coming in, take action. Put off taking on new expenses. Take firmer control of the payment of invoices, delaying bill payment until closer to the due dates. As the cash flow situation improves, business leaders may not need to borrow as much money, which puts them in a stronger situation with lenders – a better-performing company seeking less money.
Overcoming low financial performance
Sometimes, CEOs become so giddy about what they’re seeing with topline revenue that they give limited attention to net profit or loss. Exuberance about dramatically rising sales numbers isn’t sensible when expenses are soaring even more. Clarity about financial performance is always important strategically, and this is especially so when a CEO is seeking a bank loan, doing succession planning or considering a merger or acquisition from the buyer side. So how do leaders know if a business is performing well? One way is to compare it to others in its industry using industry benchmarks. It will become clear whether the company’s performance is stronger, weaker or about the same as comparable businesses.
Having the right people and capacity
If the number of customers starts growing as hoped, it’s time to celebrate – but only so much because now there’s a new challenge. The increased workload could be more than the team and equipment can handle, and those new customers might quickly become unhappy customers. Sadly, managing capacity is a weakness for many businesses. In an ideal situation, the CEO would have at their disposal data and analysis provided by the chief financial officer that would help forecast demand. The CEO would then put together a plan for what staffing, equipment, software, vehicles or other resources are needed. The “ideal” doesn’t always happen, though, because the data and analysis necessary to make those decisions are nonexistent, erroneous or otherwise unhelpful. Without the proper planning of a forward-thinking CFO, the CEO, key employees and everyone else could become overwhelmed. Frequently, CEO business owners are wearing too many hats. As a result, they are the bottleneck. We call this the Owner’s Trap.
Fortunately for growth-minded businesses, these obstacles are not insurmountable. But they do require much thought, effort and planning on everyone’s part if the business is to turn nebulous notions of growth into a concrete reality.
Kirk W. McLaren, author of The Growth CFO Void: The Guide to What’s Holding You Back From Becoming a 2% CEO, is the CEO of Foresight CFO and a graduate studies lecturer at Georgetown University School of Continuing Studies. McLaren’s team at Foresight CFO develops selected financial talent into Growth CFOs who work side by side with CEOs across the full business journey, from foundation to succession options McLaren is a licensed certified public accountant (CPA) and a certified treasury professional (CTP). He also earned his impact financial management (IFM) certification.