Every business, regardless of size or industry, passes through distinct stages in its growth. Each stage comes with its own challenges and opportunities. The key to success is understanding these challenges and making informed decisions. Sometimes, working with an accountant can seem like a cost to keep the tax man happy, but working with the right accountant can help you navigate these stages and sustain long-term success.
There are three critical components to managing growth at all stages:
- A 3-way forecast: Cash, Profit, and Liquidity.
- Interim accounts: Tracking where you are against your plan.
- Accountability: Reviewing performance against the plan.
Seed Stage
The seed stage is where an idea comes to fruition. A business owner identifies a market opportunity and starts laying the foundations for their business. During this stage, a lot of groundwork is completed, including developing the service/product offering, creating a business plan, and securing the funding to launch the business.
Key Challenges in the Seed Stage: The lack of funding and the need to understand if the concept will work and at what point it will deliver income to the entrepreneur.
How an Accountant Can Help:
- Create financial projections and budgets for the business.
- Identify funding requirements for the start-up stage and help secure funding from investors or lenders, providing a sense of relief and reassurance to the entrepreneur.
- Develop forecasts to pinpoint key growth milestones, such as when to recruit or when the business can start paying the entrepreneur a wage.
- Help articulate the entrepreneur’s goals for the business, whether building to sell or as a lifestyle business, empowering them to feel confident and in control of their business journey.
Start-Up Stage
This is where a business starts to trade, and products/services begin to be delivered. During this stage, an entrepreneur typically deals with all aspects of the business, including finance, marketing, operations, and legal. Overwhelm usually kicks in while building initial traction.
For example, even when Spotlight was started in 2005, I needed to understand my cost base, what level of fee income would cover my minimum personal income requirement, how much of my savings were needed to set up the business, and if they could bridge the time gap until the business could pay me a wage.
Key Challenges in the Start-Up Stage: Managing cash flow, attracting customers, and building a small team while delivering a quality product/service.
How an Accountant Can Help:
- Implement finance systems and procedures to manage the business’s finances.
- Offer bookkeeping as an outsourced service, allowing the entrepreneur to focus on growth.
- Compare the initial forecast to actual performance, identifying critical variances. For instance:
- If the profit on a product is lower than expected, pricing decisions can be made quickly.
- If sales growth outpaces the forecast, identify when to recruit and assess the financial impact.
- Ensure the entrepreneur stays on top of their financial and regulatory obligations.
When Spotlight started, we invested significant time in setting up systems and procedures from an operational and regulatory perspective. Tracking monthly finances enabled us to recruit as soon as it was financially viable, creating capacity for growth.
Growth Stage
This is where the business starts to scale, sales increase and operations expand. The primary challenge here is scaling operations to support growth while maintaining quality. Growing pains are common, and building the right team is critical to sustaining success.
Key Challenges in the Growth Stage: Maintaining quality while scaling, managing competition, and securing additional funding if needed.
How an Accountant Can Help:
- Review forecasts to assess whether there’s enough cash to scale operations or identify funding requirements.
- Provide regular reviews to track profitability, suggest strategies to maximize business value, and secure funding for further growth.
- Develop management information systems and KPIs to maintain visibility into business performance as the entrepreneur steps away from operational tasks.
- Identify which parts of the business are profitable and which are not, enabling informed decision-making.
As your business grows, your accountant will ensure tax compliance and efficiency, provide guidance on reviewing the company’s share structure, and plan for succession or employee incentive schemes.
At Spotlight, we’re still in the growth stage. Establishing a team structure and KPIs to monitor performance has been one of our biggest challenges. Regular financial reviews, a crucial part of our growth strategy, keep us on track to meet income goals and provide the time freedom to focus on other projects.
Maturity (Exit) Stage
This is where the business reaches a stable and sustainable level of performance, or the level of performance at which the owner wants to exit. The key challenge here is understanding how and when the owner wants to exit. If managed correctly, the succession plan should have been established during growth. The owner will have:
- A clear understanding of the business valuation.
- Worked to maximise this value.
- A personal financial plan ensuring the value aligns with their needs.
How an Accountant Can Help:
While Spotlight is nowhere near the exit stage, we’ve worked with clients who were unprepared for their exit. Examples include:
- Lacking the proper share structure, leading to unnecessary tax bills.
- Missing opportunities to maximise business value due to not looking at the business objectively and growing a monster.
Conclusion
Business growth is not a straight-line trajectory, and every stage has unique challenges. Having a clear financial plan and interim accounts and working with an accountant to identify challenges will put your business in a better position for long-term success.
At Spotlight, I work with a mentor who keeps me accountable for our performance and growth compared to our plan. This accountability has been key to preparing and reviewing the information, ensuring I don’t get distracted by other issues within the business. Partnering with an experienced accountant can provide the clarity and support needed to thrive through every stage of the business growth lifecycle.
You can find more about our Spotlight on You service here.
