John Thompson
Head of growth programme, Baker Tilly
Markus says, 'We still have many goals to meet…', but what are they? The business strategy should focus on achieving these goals. Growth may be integral to the strategy but shouldn't itself be the driver of the strategy.
Increasing turnover is often essential to achieve the critical mass needed to generate super-profits. Many businesses grow in steps - a period of investment when profit growth is small, followed by jumps in profits as the fruits of the investment are harvested, before further periods of investment. The trick is to smooth the steps into a steady gradient. Plan, plan and plan - to stay in control of the business and to manage and monitor growth. The discipline of 'planning mindset' will also help identify future funding requirements.
Roofing requires stringent risk management and these principles should be applied to the whole business. Having 40% of turnover dependent on one contract could be risky if the contract is not as profitable as forecast. What is the ideal contract value for the business? It will change as the business grows.
Andrew Cremin,
Director at Saffery Champness Corporate Finance
To provide extra capacity to meet demand it is likely that the brothers will require external financing to fuel growth. As the owners of a well-managed business, various options are likely to be open to them if they apply for expansion capital, and they should think about these carefully.
While it's great that their bank is so supportive, I would caution against the business relying too heavily on the bank's overdraft facilities alone.
Overdrafts are sources of short-term finance that, when used alone, can be a risky way of financing business activity. Probably the best use of an overdraft is as an additional cash resource to what is already in place - to help fund working capital requirements and day-to-day trading, and generally to smoothe out cashflows.
Maurice and Markus appear mindful of the danger of overtrading. Even highly profitable companies can be forced to the wall when managers are tempted to accept greater amounts of work than they can realistically fulfil.
I would suggest putting together a business plan that, as well as helping attract fresh capital, demonstrates to financiers how they are operating the business through its growth. As well as setting out their funding requirement, they should detail the systems, controls and sales pipelines they have in place and ensure their plan is underpinned by research and hard facts. This will enhance their credibility with funders and get them on the front foot when it comes to raising extra capital.
Mike Conroy
Senior manager, HSBC
It's so far so good for Maurice and Marcus. Their investment in training and quality seems to be delivering good growth, and they recognise that growth needs to be managed with care. Growth, however desirable, is not without a number of pitfalls that can trap the unwary.
One is overtrading - taking on business beyond a level that can be supported by working capital. In a fast-growing business, you have to make sure there is enough cash available to pay the bills and wages. More businesses go bust through poor cashflow management than through being unprofitable.
There are a number of alternatives to an overdraft facility that can help to manage growth. With invoice finance, for example, the amount you borrow grows in line with sales, so it is a very flexible way of financing growth.
Finally, they may find it helpful to write a growth plan. Although similar to a business plan, a growth plan focuses specifically on expansion and how to achieve it. Creating a plan takes time, but it will ensure that the pitfalls are considered, opportunities taken and resources put in place. As a result they w ill be more likely to achieve their ambitions.
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