Why it pays to have a network of advisors – part 1

Why do you need advisors? 

If you’re an entrepreneur, it’s likely that your training is in a specific specialty area. You’re brimming with ideas and very good at what you do.  Your major weaknesses are probably in sales, marketing, management, law, and accounting…in other words, those areas most critical to running a successful business.  The case for advisors is quite straightforward! 

What advisors do you need?

Accountant

Retaining an accountant is essential.  Accountants should do far more than help you keep books and submit tax returns. They can help you start and structure a business, write business plans, find investors, monitor and analyse finances, and more.

Find an accountant whose business and customer base are similar to your own. That person will understand your needs and challenges and will be willing to give you the time and attention you require. If you are in a financially specialised area, find a specialist accountant. Someone familiar with your industry will be able to assess your company’s performance better, and may have useful contacts too.Find an active, forward-thinking accountant and meet regularly. A good accountant will be able to analyse your finances and help you to review your strategies or structures when needed.

Lawyer

Lawyers’ fees can sometimes seem expensive but recovering from mistakes made by going it alone could be disastrous.  Like an accountant, a lawyer can give you some general business advice and will help you structure your business correctly at the outset. Find someone who has a specific interest in businesses like yours and, if necessary, specialist knowledge of your area.

Consult a lawyer when you set up the business, sign leases, draft terms and conditions, issue or receive contracts, enter into disputes, and for copyright or trademark protection.Always speak to your lawyer before you complete a legal transaction, not afterwards!

Insurance broker

Depending on your business, you may need to be insured for multiple items, such as vehicles, property, fixed assets, disability, liability…the list can go on.You’re unlikely to get a fantastic deal on insurance anywhere.  Find an insurance advisor who is trustworthy, competent, up-to-date and rigorous. That way you can rest easy, knowing that you can rely on your policies to pay out, should you ever need to claim?
 
Business Banker

You may be allocated a business banker when you open a business account but if you own a small business, don’t expect to be taken out to dinner, invited to golf days or even informed when your account is given to someone else.In today’s impersonal banking environment, the relationship with the bank manager isn’t what it used to be. Banks have rigorous rules and processes, and decisions tend to be out of your banker’s hands.

However, it’s still worth meeting infrequently to update your banker on your company, its progress and prospects. That way, when you need finance or other services, your banker might try just a little harder to get your application through or make an effort to give you personalised, rather than generic, advice.

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The business lifecycle – part 3

In parts 1 and 2, I discussed the first 4 phases of a typical business lifecycle; from its very first days to reaching maturity.

In this article, the last of the series, I’ll discuss typical characteristics of a business that has developed to a stage where its owners are expanding.  I’ll also discuss how to identify a business that has reached its peak and is now declining and the merits of reviewing exit strategies for its owners.  

5. Expansion or transition phase

This life cycle is characterised by a new period of growth into new markets and distribution channels. This stage is often the choice of the small business owner to gain a larger market share to find new revenue and profit channels.  Moving into new markets requires the planning and research of an embryonic or start-up stage business. Focus should be on businesses that complement your existing experience and capabilities.

Moving into unrelated businesses can be disastrous.Add new products or services to existing markets or expand existing business into new markets and customer types.  Funding is likely to be sourced from joint ventures, banks, licensing, new investors and partners.

The business is built. You have watched it grow and mature, now a whole new set of possibilities awaits. Is it time to buy, sell or merge? Are there new growth opportunities? Have you thought about succession planning? What about estate and retirement planning or family wealth management?
 
6. Decline phase

Changes in the economy, society, or market conditions can decrease sales and profits.  This may quickly end many small companies.  Businesses in the decline stage of the life cycle will be challenged with dropping sales, profits, and negative cash flow.

The biggest issue is how long the business can support a negative cash flow. Ask is it time to move on to the final life cycle stage…exit.  You may need to search for new opportunities and business ventures. Cutting costs and finding ways to sustain cash flow are vital for the declining stage.  Funding is now likely to be restricted to your suppliers, customers and owners.

7. Exit phase

This is the big opportunity for your business to cash out on all the effort and years of hard work. Or it can mean shutting down the business.Selling a business requires your realistic valuation. It may have been years of hard work to build the company, but what is its real value in the current market place.

If you decide to close your business, the challenge is to deal with the financial and psychological aspects of a business loss.  Get a proper valuation on your company. Look at your business operations, management and competitive barriers to make the company worth more to the buyer. Set-up legal buy-sell agreements along with a business transition plan.
 
Find a business valuation partner. Consult with your accountant and financial advisors for the best tax strategy to sell or close down the business.

CONCLUSION

Each stage of the business life cycle may not occur in chronological order. Some businesses may quickly move through each life-cycle phase; some may skip some out all together.  Many business owners will choose to avoid expansion and stay in the mature life-cycle stage. 

Whether your business is a glowing success or a dismal failure depends on your ability to adapt to its changing life cycles. What you focus on and overcome today will change in the future. Understanding where your business fits on the life-cycle will help you foresee upcoming challenges and make the best business decisions.

If you are interested in understanding more about why businesses fail and what you can do to avoid it happening to your business, I’ve written a short eBook called “7 common reasons for business failure…and what you can do to avoid it happening to you”.  Further details can be found at:  www.7reasonsforbusinessfailure.com

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Why paying attention to the “ups” and “downs” of the business lifecyle will help you – Part 2

My previous article looked at the traits of a business that has just begun, may be with just a thought, and how it moves into a start-up phase.  This article looks at the next 2 phases as the business begins to take shape and grow, then reaching maturity.

3. Growth phase

Your business has made it through its infancy and is now a child. Revenues and customers are increasing with many new opportunities and issues.  Profits are strong, but competition is emerging.  The biggest challenge growth companies face is dealing with the constant range of issues bidding for more time and money.

Effective management is required and a possible new business plan. Learn how to train and delegate to overcome this stage of development.  Growth life cycle businesses are focused on running the business in a more formal fashion to deal with increased sales and customers.

Better accounting and management systems will have to be set-up. New employees will have to be hired to deal with the influx of business.  Money may be sourced from banks, profits, partnerships, grants and leasing options.At the Growth phase, you’re making your climb to the top. The market is beginning to know your name and so are your competitors.

Demand for your products and services are increasing, maybe at a faster rate than you can deliver. It’s an exciting, fast-paced time. It’s often easier to focus on new customers and customers than on re-evaluating the systems and procedures you put in place months or years ago. 

Are they still adequate for your current needs and future projections? Do you have the financing in place to match your growth? Has your strategic planning process kept pace? Are your benefits plans designed to attract, motivate and keep good talent? What are your next steps?

4.  Maturity phase

Your business has now matured into a thriving company with a place in the market and loyal customers. Sales growth is not explosive but manageable. Business life has become more routine.  It is far too easy to rest on your laurels during this life stage.

You have worked hard and have earned a rest but the marketplace is relentless and competitive.Stay focused on the bigger picture. Issues like the economy, competitors or changing customer tastes can quickly end all you have work for.  A mature cycle company will be focused on improvement and productivity.

To compete in an established market, you will require better business practices along with automation and outsourcing to improve productivity.  Funding is likely to come from profits, banks, investors and government.You’ve made it to the top! Your financial position is strong, your team is experienced and your operations are stable. But staying on top creates a whole new set of challenges.
 
At this point in your business life cycle you may want to investigate mergers and acquisitions, look at more sophisticated financial and compensation planning, minimise risk and liability, or conduct trend analysis to discover new ways to expand and grow your business.
 
This is a time for major decisions.  The decisions you make now will produce the results you need to prepare you for the next leg of your journey expansion and transition.
 
Each stage of the business life cycle may not occur in chronological order. Some businesses may quickly move through each life-cycle phase; some may skip some out all together.  Many business owners will choose to avoid expansion and stay in the mature life-cycle stage. 

Whether your business is a glowing success or a dismal failure depends on your ability to adapt to its changing life cycles. What you focus on and overcome today will change in the future. Understanding where your business fits on the life-cycle will help you foresee upcoming challenges and make the best business decisions.

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Why paying attention to the “ups” and “downs” of the business lifecyle will help you – Part 1

Introduction

Businesses form, develop, mature, reinvent or die. Different stages of the business life cycle are associated with different risks and expectations and they may need different management styles and strategies to meet the needs of their customers.

Many businesses, that live long enough, typically start with an entrepreneurial seat-of-the-pants management style, and then move onto a stable administrative infrastructure and well-planned and managed development.Do you know where your business is in the business cycle?  Are there indicators that your business is moving from one phase to another; and, if so, what are these indicators? How are you adjusting to the business cycle in terms of your vision, activities, locations and resources?

Over the years, I have observed that there are typically 7 stages in the business life-cycle and I will share these with you over 3 articles.   In the first one, I’ll discuss the embryonic and start-up phases; followed by the growth and maturity stages in the 2^nd article.  In the final one, we’ll look at expansion at exit phases.  I hope that you’ll join me for all 3.  

Think about the life-cycle of your business as a long journey.  Your business’ needs will change significantly at each new stage as it continually experiences and undergoes change. Over time, it will go through various stages of the business life-cycle. 

Learn what upcoming focuses, challenges and financing sources you will need to succeed.A business goes through stages of development similar to the cycle of life for the human race. Parenting strategies that work for your toddler cannot be applied to your teenager. The same goes for your small business. It will be faced with a different cycle throughout its life.

What you focus on today will change and require different approaches to be successful.While most of your basic needs – accounting, assurance, recordkeeping, tax consulting and compliance – will be consistent throughout the life of your business, the requirements and level of sophistication for them will change as your business changes.  Other types of needs:  Recruiting staff, arranging finance and capital, upgrading internet and network technologies and retirement planning – will emerge.
 
I invite you to review each of the business life-cycle phases to learn how you (and when you) need to adapt to meet your needs as your business evolves.

1.  Embryonic phase

The embryonic stage of your business life cycle is when your business is just a thought or an idea. This is the very conception or birth of a new business.  Most businesses at this stage will need to overcome the challenge of market acceptance and probably pursue niche opportunities.  Do not spread money and time resources too thin.
 
At this stage, focus is on matching a business opportunity with your skills, experience and passions. Other focal points include deciding on business ownership structure, finding professional advisors, and business planning.
 
Early in the business life cycle with no proven market or customers, the business may rely on cash from owners, friends and family to fund it. Other potential sources may include suppliers, customers and government grants.

2. Start-up phase

Your business is born and now exists legally.  Products or services are in production and you have your first customers.  If your business is in the start-up life cycle stage, it is likely you have over-estimated money needs and the time to market.The main challenge is not to burn through what little cash you have.

You need to learn what profitable needs your clients have and do a reality check to see if your business is on the right track.  Start-ups require establishing a customer base and market presence along with tracking and conserving cash flow. 

Funding is often sourced from the owner, friends, family, suppliers, customers, or grants.When embarking on a new business or venture, the journey ahead is filled with opportunities and obstacles. The choices you make in the start-up phase of your business can dramatically affect its future. Choosing the right business entity, accounting methods, filing business registrations, acquiring capital, complying with tax regulations and selecting the most appropriate information technology systems are all critical.

My next article in this series will look at the characteristics of businesses that have entered the growth phase, moving into maturity.  Join me in a couple of days.

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I’m taking a family break

Hi,

I am going to be taking a family holiday during school holidays on July 5 for 9 days as we head to Tonga in the South Pacific.  I’m not anticipating adding any articles during this time so I’ll resume in mid-July!

People keep asking me when my next 2 eBooks on “Secrets to better time management – making your time count effectively” and “Strategies for keeping customers happy and coming back” will be ready. 

Realistically, they’ll be ready in late August as I don’t want to rush them. 

I’m delighted that my 2 other eBooks on “SLASH your tax bill by up to $5,000 every year” and “7 common reasons for business failure…and what you can do to avoid it happening to your business” were received well.  Feedback has been very positive and thank you, once again, for those who bought them. 

So… I’ll be back in mid-July.  Take a break from reading this blog and work hard on your business in the meantime.

Regards,

Mark

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