For ambitious entrepreneurs, a genuine passion for their products and services can have a significant impact on their success. However, to guard against the risks involved in making emotionally-charged decisions, it is vital that business owners use careful research and planning to evaluate the best strategic path for their business and achieve sustainable growth.
How to de-risk business decisions
Debt vs. equity
Often, a key part of expansion plans for SMEs involves securing the additional funds required for growth. However, when deciding upon the best finance option, it is important that business owners consider the individual needs and characteristics of their organisation. For example, while debt funding can prove a cost-efficient finance option, SMEs will need to decide whether this debt provides them with sufficient resources to fulfil their specific growth plans, or whether a combination of debt and equity would be more effective. Similarly, for businesses aiming to bring products to market quickly, issuing shares might be the only option, allowing business owners to benefit from specialist expertise in return for a degree of ownership in their venture.
When it comes to applying for credit, loan approval or an investment, the presentation of a solid business case can only be achieved by providing solid facts, figures and credentials. Before meeting with a lender or investor, gathering key materials in advance, including robust financial projections, profit and loss accounts, balance sheets and business plans will put company owners in the best position to secure financial backing.
New market entry vs. diversification
With only 11% of UK businesses currently exporting, overseas markets offer significant opportunities for ambitious SMEs. However, prior to making such an important move, it is vital that business owners conduct due diligence to determine the legal, logistical and other specific challenges involved. As well as undertaking market research to assess levels of demand for a particular product or service in specific geographical locations, SMEs must carefully evaluate the levels of investment and management required to implement an international growth strategy.
If business owners decide that breaking into overseas markets is commercially viable, thought will have to be given to whether the move should be negotiated using an on-the-ground presence, via a partner organisation or a senior team member. By taking advantage of assistance available from the department of UK Trade and Investment (UKTI) as well as business advisers with relevant marketplace experience, SMEs can ensure a smooth transition into new markets whilst mitigating potential risks.
When allocating the resources required for business growth, it is important to keep the bigger picture in mind, with research, development and innovation often holding the key to increased market share. By giving careful consideration to ways of increasing efficiency and managing resources, for example, via new product development and the discovery of new production methods, SMEs can drive market share and optimise profit margins. Similarly, it is important to establish if the business is eligible for R&D tax relief or capital allowance claims in respect of these investments. Close analysis of the options that are likely to have the most significant impact on a company’s bottom line facilitates intelligent decision making, giving business leaders an all-important edge over their competitors.
Ultimately, a rational and data-driven approach to business development should involve SME owners knowing where to draw the line; placing a limit on the time and money invested in a project reduces the risk of making emotionally-charged decisions which may compromise an organisation’s wider financial stability. Taking care to ensure business decisions are aligned to the firm’s growth strategy will give business owners the best chance of taking their company to the next level; ensuring that years of passion and commitment pay off.
Find out more about the the key considerations and businesses should take to transform their enterprise into a fast-growing SME, by downloading our Advisory white paper.