Factors that prevent the financial growth of your business

03 Apr Factors that prevent the financial growth of your business

Entrepreneurs go into business to earn a profit, but entrepreneurs stay in business when they earn and use profits sustainably. It’s not just about generating income and spending cash for the short-term, but it’s also making sure that the long-term goals and financial growth of the business are attained without sacrificing the current needs. As with any undertaking, there are challenges to making this happen.

Here are some barriers that could hinder the sustainable financial growth of your business:

Mindset

Are you afraid of growing outside your comfort zone? Are you worried about failing? Do you lack the confidence to grow your business to its full potential? Revisit your mindset and how it could be holding you back. Successful people are confident, not because they know that they will be successful all the time, but because they are comfortable with the possibility of failure. And this brings us to the next point…

Being too risk-averse

We’ve all heard the old adage, “No risk, no reward.” When it comes to your business, you need to take calculated risks. However, being too risk-averse might hinder your growth; while being too much of a risk taker might cause your business to fail. As you plan for your growth, revisit your SWOT analysis and prepare your “Plan B” to get yourself ready when some unexpected variables pop up ― like manufacturing issues or cash flow problems.

Poor strategic planning and vision

What are your business needs and goals? What are your short-term and long-term goals? How do you know if you have reached those goals?

Define your business goals and strategies, establish your success indicators or KPIs, and monitor your progress. Look at both internal and external factors that could affect your growth. If you want increased revenues by next year, you need  to consider asking yourself these questions:

1. What form would it take (in measurable terms) and will you be ready to respond and grow in that area?
2. Could there be favorable market trends and new doors of opportunities that you should take advantage of to attain increased sales?
3. How will this fit in with your overall vision and direction for the business?
4. Will you have the resources (e.g. staff, equipment, finances, etc.) to capitalize on this potential growth area?

Poor financial planning

Every business needs cash to expand, and the availability of funding is a critical issue that needs to be properly planned out. Obtaining capital for expansion might mean getting new investors. The capital can be obtained from a loan or a line of credit.

To make the right financial decisions, you need to understand the role of working capital management in achieving a balance between return and risk associated with the mix of your business assets and liabilities. For example, more current assets (e.g. cash, receivables, and inventory) may lead to greater liquidity, but they yield lower returns. On the other hand, long-term financing has less liquidity risk than short-term debt, but it carries a higher explicit cost.

Managing the business’ cash flow is also important to avoid operating capital shortages and defaulting on bills. To do this, you need to have a detailed understanding of your revenues and expenses and use this to prepare an accurate operating budget and cash flow forecast. A good strategy for cash management would be to accelerate cash collections, slow down disbursements (within the credit period), and reduce the need for holding precautionary cash balances. To help manage your cash balances and prepare for potential deficiencies or savings, you also need to be aware of your cash breakeven point. Once you get the money flowing and earn excess cash, revisit your overall strategic business plan and see how your saving and reinvesting decisions align with it. For example, if you intend to grab more market share, then your reinvestment in the business can be made toward opening more outlets or investing in more salespeople.

Insufficient resources for growth

Could it be that you are lacking the resources to enable your growth? The number one resource would be people. You may need to hire additional staff or outsource work as the business grows. Hiring the right people can be tricky, so always make sure to carefully define job responsibilities, authorities, expectations, and KPIs. Another aspect to look into would be the knowledge and skills of the team, including those of the leadership and management.

The business becomes even more difficult to manage when the business operation becomes larger and more complex. So you might need help with aspects such as financials, product research and development, sales, and marketing. You may address this by self-study, getting a mentor, or hiring specialists. You can also invest in training programs to upskill your employees and enable them to take on the more challenging responsibilities of a growing business.

Inefficient systems and processes

Could your systems, processes, and procedures be inefficient and ineffective? Do you have written process documents or work instructions? Is your team clear on the purpose, description, and step by step process of your procedures? Are there IT or software solutions that could make your business processes faster?

Take time to review your end-to-end processes and check if there are areas that you could eliminate, simplify, standardize, or even automate. For example, QuickBooks Online has a feature that integrates the accounting software with payment apps, which can make collections and payments work seamlessly, allowing you to invoice and collect faster, or schedule the timing of your payments better.

Poor customer service

For sustainable business growth, you need to find new customers, sell more products to existing customers, or ideally, do both. This means consistently providing superior products or services to customers to keep them coming back for more. If your business is not growing, then consider if you need to make some changes in how you are servicing your customers.

Inadequate sales and marketing strategy

A growing business needs a dynamic and flexible sales and marketing strategy. Doing the same things that you have always done may not be enough to respond to the new business environment. For example, as you tap into new markets, sales and marketing may need to be developed into two separate functions: sales should focus on selling and marketing should focus on going after the right and most profitable customers.

Poor information management

Getting accurate and timely data about business transactions is critical to making the right decisions. Proper information management helps you capture, organize, share, and analyze data as your business grows. Advancements in cloud computing also enable you to access this data in real time, so you could easily see how your business is doing from the palm of your hands. Having access to reliable information within a central repository also enables you to communicate and collaborate better with your team.

If you are looking to grow your business, these are just some of the barriers that you may need to hurdle through as you expand. Plan and prepare for your growth, both short-term and long-term. There might be times of difficulty or failure, but remember to keep failing forward toward your goals.