Growth is the goal of virtually every organization. However, it takes more than a good market and a good product to sustain and support growth.
When we partner with an organization, it’s typically to help them achieve, prepare for, or support growth in some way. This may include growing revenues, managing organizational systems to support growth, analyzing cash flow to increase profits, acquiring funding to support growth, strategizing geographical or product expansion, or assisting in mergers or acquisitions.
In this growth, we’ve seen 6 important factors that contribute to strategic, sustainable growth.
1– Know where you are
Without clear understanding of your current position, it will be difficult to strategize growth. Knowing where you are:
- Gives you better knowledge of the resources you have that currently support your organization
- Can help you predict what type of resources you’ll need for supporting future growth.
- Helps project revenue and expenditure trends so you can plan for your growth (see point 2 below).
- Answer questions from potential lenders or investors.
- Know how much (if any) funding you may need to support growth.
- Understand what you need—exactly— to support growth.
If you don’t have up-to-date books and an understanding of your revenue and expenditure trends, then strategic and sustainable growth will be difficult.
2 – Have a plan
Growth shouldn’t be a surprise—or it should at least not be something you haven’t planned to support. A financial forecast is essential for achieving and sustaining growth.
A financial forecast takes your current situation and details what steps you need to take to get from where you are to where you want to go. This includes:
- What resources you will need and when
- When you will need financing, how much you will need, and what mix of debt vs. equity to shoot for
- How to create sales increases and what you will need to support them
- An educated estimation of cash flow so you know what to expect through the process of growth.
Think of it as the blueprint to build your house. Sure, you could just start building, or have just a general idea of what you want to achieve, but the more planning and budgeting you put into the early stages, the less you will waste time and money in achieving your goal.
3 – Don’t go overboard and overspend on hires to prepare for growth
If you’ve ever seen a customer support team, service team, or manufacturing team break under an influx in customer volume, then you know the importance of making sure there are processes and people in place to keep a company running smoothly through new growth.
However, you don’t want to overshoot and overspend in new hires before your company can support the extra financial burden.
Preparing for growth is important, but strategic preparation isn’t about going overboard; it’s about preparing intelligently. Use your financial forecast and your knowledge of your company capabilities and revenue trends to do your best to predict at which points it makes the most sense to add systems and people.
4 – Optimize your existing finances
If you have cash flow issues, your spending is out of control, your margins are low, or you have a hard time paying your employees, then it may be worth identifying and resolving those issues before complicating things further with more products, employees, or regions.
It’s also important to have your existing finances clean and organized f you’re planning on raising debt or equity financing since your financier will need a clear picture of your company’s current position.
5 – Don’t upgrade your systems too fast—but don’t upgrade them too slowly either
You’ve probably heard the mindset of ‘designing the team now that you need to achieve your goals in the future. Financial systems are no exception. When an organization is slightly ahead of the financial system upgrades they’ll require during growth (as opposed to waiting to upgrade when systems are overwhelmed by new or more complex data), they are in a better position to support and sustain growth.
Financial systems can get be basic or extremely complex, and every in-between imaginable. It’s important to find the right balance between preparing for the future, but not going too big and complex too quickly.
Take a look at your current financial system compared to the financial system you will need when you achieve your future goals. Be sure to also consider all systems you will need that attach to that financial system, like ERP, CRM, transaction processing, inventory, warehouse management, time card, etc. What are the gaps?
After you assess the gaps, you’re in a better position to determine which system improvements can be prioritized now to better support growth in the future, and which can (or should) wait until you’re closer to the goalpost. Are there legacy systems that will will block or impede you from adopting superior systems moving forward?
6 – Raise Funds Thoughtfully & Intelligently
Some of the biggest mistakes people make when they’re raising capital for growth are:
- Not knowing how much they need. It’s a terrible feeling to have gone through all the work of acquiring financing only to realize down the road that it wasn’t enough. This is where the financial forecast from point 2 really comes in handy.
- Not knowing their desired debt-equity mix. If raising capital is part of your growth plan, you need to analyze what mixture of debt vs. equity financing is right to help you achieve your business goals. Not knowing what you want can mean you make mistakes now that you’ll regret down the road.
- Not having their ducks in a row. Have we emphasized the importance of financial forecasts enough yet? This is another instance where having your books organized and having a financial plan is essential. Financiers won’t take you seriously unless they have a clear picture of where you are, where you’re going, and how—exactly—you plan to get there. In a very real sense, if you do not have a detailed, bottom-up forecast, you do not really have a plan.
What’s your biggest hurdle or fear in creating sustainable growth?
We’d love to hear more about your challenges, concerns, or successes in the growth of your organization. Share your story with us below! Or if you’d like to speak directly with a CFO, give us a call or fill out the form below and we will be sure to respond immediately.
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