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.
Cashflow forecasting
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.
Find about more about Bill Hale here at Deloitte's site and find out more about Deloitte's services for growing businesses here.
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10 Comments
This represents the traditional view of business success from the accounting profession. It is not surprising in our age of hubris that their centre is financial.
I have successfully built two businesses from scractch without any meaningful relationship with my banker with use of a family loan in one instance and no debt whatsoever in the second.
At a certain point availability of finance may not be anywhere near the most important restraining growth factor.
Another common myth I have found is the idea that if the business is not growing it is dying, this turns out to be wrong.
The key success factors differ from business to business but are, in reality, quite few. That only a few can see them correctly is the odd thing. One that is common to all is that persistence is the key.
Persistence is definitely the key. You hear a lot about some young person who had an idea that made them millions overnight but most successful businesses have been around for 15-20 years before they really hit pay dirt. They've weathered several recessions and got to be a major player in their industry by staying afloat, constant refinement and attrition of the competition. I think demand rather than finance is the biggest constraint in NZ.
When it comes to start ups the big unspoken is luck. This guy Grant Ryan is honest about it.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10798568
"I want to emphasise a dirty little secret that some successful people don't like to mention about their start-ups. There are large elements of luck involved. To be successful, you've got to be "in the game" but if you are doing this sort of thing with any regularity, elements of luck and failure are inevitable, that's just life....It bugs me when successful folks mention all the pretty obvious things you have to do but don't acknowledge luck."
You can have a great idea but if your timing is a little off or you don't hook up with that cornerstone client before your working capital runs out, you're toast.
What is the point in wasting your time lamenting about luck, or any other of the hundred things people will tell you are reasons it won't work?
It's easy to blame anyone or anything other than yourself. Just look at most of the comments on this very site. It's always the government, or John Key, or the lack of oil, or the previous government. It's a rare day when someone suggests the solution is in their own hands or we should be looking in the mirror.
It's as lame as the Wallabies who blame their loss on bad weather. The truth is they didn't front. Maybe they were worried about their luck.
The road to victimhood is filled with those who clutch their little bag of blame to their chest and moan about the reasons it didn't (or can't) work out.
Certainly not lamenting :) But in a small start up, with just an idea and rudimentary business plan, no customers and a small amount of working capital, hard work alone isn't a guarantee of success. Sometimes a stroke of good fortune is required. Agree though if you do fail you have to be honest with yourself.
The best advisors out there will offer more than the standard advice, do due diligence on your proposal and if you pass muster, mentor you on a SWOT basis, make introductions to potential clients and alternative sources of funding. Luck no, its playing and exhasting the opportunities in a systematic fashion. Maxium results from the effort possible. If it an't going to fly it is better to know now rather than later. Time is your currency.
Agree. Good advisors/mentors, either paid or unpaid, are often key to success, especially in the start of one's business. But that's not the same as saying advisors/mentors are key for success. Some banks lending to agriculture still require budgets done with announced payout figures. This is plain stupid. It can be hard to get a young sharemilker to realise that just because a bank says it will work, it doesn't mean that it will, on a long term basis. Every year you wil see young farming folk take on contracts that they shouldn't simply because they are so keen to 'get ahead', that they don't realise that they may in fact be going backwards. Either the contract they have signed is setting them up to fail, or they don't have the necessary financial/management skills. The harshest critics of the dairy industry are often those who feel hard done by it. But when you look deeper in to their situation, it often comes back to them not making the right enquiries of their prospective employers.
CO agree..just a contrast to what the standard is as highlighted. Was trying to highlight what is available and what you should be looking for. Most sucess stories today have this help... less and less are add hoc and make it on their own...regards of the stories attached. One main reason we have a lower ever level of sucess here in NZ per head of population is lack of pro-active advice at this level. The other me thinks is lack of an enterprise culture. Certainly easier to make financial independence through proeprty isn't it.
Ralph is right.
A business and the plan is not always about the bank. I too have a very successful business without any great relationship with the bank. I use banks for the excellent service they provide in processing payments in and out. And not much else can think of.
Is the column above about marketing that accountants business. Seems to be. I remember BNZ once gave me a whizbang CD about developing a business plan. But what it actually turned out to be was a system for developing a presentation to the bank for a loan. The acutal business was secondary.
It was probably put together by some of those younger business graduates who have been feed the constant images that business is about making a powerpoint presentation to their peers. And none of them ever seem to leave the meeting room.
I do like real business plans however.
Mind you the accountant above was on the button when he uses the bus description, who is on it and who is driving it where.
A business should be all about the plan for longevity.
It should be able to stand on its merits, not hype like Facebook.
We have lost the plot in ensuring that excessive borrowings are the answer.
Under fractional reserve banking there is only so much that can be sustained by so few.
Cashflow is everything. When the cash stops flowing, no matter what the plan, the SHTF.
Facebook is a prime example of a sub-prime business.
Compounding frauds by fradulent and over hyped bankers and politicians has been the undoing of the entire worlds business and economic strengths.
When a meatworks closes, a town is affected and so are its neighbours.
When a country stops working a similar ripple effect happens.
You can advertise all you want, if the populous cannot buy, they cannot buy.
Ask Quantas.
Facebook is a belief in hype, not a belief in reality, as proved by those supposedly investing in a sure bet.
Sustainable business, depends on dependability of others.
Short term thinking may use borrowings to keep afloat.
When the float is gone, we see what is happening all through Europe, etc.
Now we see magical tricks, not sustainable tricks with currency.
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