How to grow your business sustainably in the post-recession world

Growing your business sustainably to ensure long term success is a challenge.

Grow too fast and you risk running out of money but start turning away work and you may lose valuable clients to competitors.

The key to successful growth is managing your cashflow and ensuring you always have access to sufficient capital which, since the recession, has been more difficult to access via traditional banks.

The value of borrowing approved facilities to SMEs in Wales has fallen by 30 per cent since 2011.

While there have been efforts by the government to introduce cheaper lending, this has not translated into increases in the number of loans from the banks.

Reports estimate a total funding ‘gap’ of around £500m per annum for those businesses who want to get access to funding but have been refused support by the banks in Wales.

Happily for Welsh SMEs, the funding marketplace is evolving to offer a variety of new financial vehicles that can help finance growth such as cash flow funding, peer-to-peer lending, crowd funding and private and angel investment.

During the last 12 months, there has been increased use of invoice discounting, leasing and other forms of non-bank finance, possibly as a result of decreased lending by the high street banks.

SMEs actually have greater choice than ever in how they finance growth but before businesses choose a new lender to finance growth they should ensure they have the basic checks in place to understand and control their cash flow. This way they can seek out the amount and type of funding will be best suited to their needs.

Here are some basic steps to help:

1. Make sure you're maintaining a consistent bottom-line profit

A business should ensure it has recorded steady growth over a prolonged period of a few years before investing heavily in growth, whether that is in the form of staff, equipment, office space or more.

2. Draw up a cash flow forecast to ensure the business is secure

SMEs may wish to delay or scale back growth if they find themselves reliant on the punctual payment of just one customer or if their supplier’s credit terms are stricter than their own meaning they are paying out money faster than they receive it. Any responsible business owner should ensure there is always some cash to fall back on.

3. Look at market trends

Business owners should keep an eye on both economic and consumer market trends for indications of their company's staying power. This will also help them identify new markets which could support growth

4. Maintain strict record-keeping to ensure the cash keeps flowing

Payment should be chased quickly and efficiently. Businesses should issue invoices as soon as possible and bank any cash or cheques the moment they arrive. It is worth offering discounts for timely payment and allowing customers to pay by BACS. SMEs should charge interest on overdue payment where possible.

5. Monitor customer behaviour

SMEs should ensure proper credit checks and due diligence is followed when entering any important deal. Where customers prove to be reliable and timely payers, businesses can consider ways to increase income from them. When customers are consistently late with payment business should look at ways to minimise dealings with them.

6. Consider how you are going to grow

Do you need more staff? New and more advanced equipment? A new office? Business owners must consider the logistics of growth and what they will need to put in place to support it as this will have a major impact on the amount and type of lending they need.

7. Chose a lender which suits your business needs

SME owners should hunt around and find a lender that suits their needs. While only eight per cent of firms received advice from their bank last year, according to government research, many of the new style lenders can offer much more than simply funding. They want to develop profitable long term partnerships with SMEs, offering business advice, support and help with financial management. Businesses that enter into a mentoring partnership with a finance provider are twice as likely to survive beyond five years, according to the Federation of Small Businesses.

8. Don’t lose sight of your original business aims

SME owners should be confident they can carry out incoming work to the usual high standards before they agree to it, otherwise their reputation will be tarnished in the longer term. While winning new business is vital, staying focused on output and performance is equally important.