For most small businesses, the need to create long-term value with only limited resources is more of a challenge than a task; building sustainable growth doesn’t just happen because your business is making money now, it takes long-term vision and strategic planning.
Sustainability is more about proving that your business could withstand an unexpected (although often temporary) problem such as a negative fluctuation in sales, a capital shortage, loss of a key customer or even just customers not paying on time.
So, generating a profit from one month to the next is a great achievement for the short-term, but it doesn’t make your business stable. And even though you can probably assume stability will follow, this is something that funders (debt or equity) will look for you to prove.
Regardless of your industry, business size or current turnover, the fundamentals of sustainable growth remain the same, here’s just six of them:
- Genuine purpose
You must define for your business ‘why we do what we do’ and turn it into a vision that is believable. A strong purpose not only drives growth and profitability but creates a motivated team that shares your goals.
A vision must evolve with your business and you need to keep re-visiting it to proof-check that your sense of purpose still stands and that your business is living it with you. Having an authentic purpose results in:
- A reliable and on-going sense of focus
- Strong emotional engagement both internally and with customers
- Ongoing strategic innovation
Investors will be keen to see that your business is built around long-term forward thinking and that your strategy is robust enough to adapt to an evolving vision as your business grows.
- Robust financials
A cashflow budget is essential to help you manage your day-to-day income and expenditure, but it also allows you to plan ahead and make sure you have enough reserves to cover the unexpected. The more granular your cashflow planning, the more detail you can show to investors about your current (and projected) financial position at any one time.
You should also test your financial model against various scenarios to prove the stability of your business should you see a decrease in sales. Funders will be particularly interested in understanding the point at which your sales level will no longer be profitable.
And for these times, you will need to outline a strategy for keeping your business afloat, whether that be a reduction in spend or a short-term funding solution.
- Operational efficiencies
Building a culture where you are focussed on driving down costs will allow you to streamline your business functionalities, making sure that your projected spend is as lean as possible.
Check out our blog ‘Credit management tips for controlling your cashflow’.
Operational efficiencies are fundamental to achieving good levels of growth and to do this properly, you need a workplace that is sensitive to costs and the subsequent impact on the business. You should also encourage people to adopt innovative ways of working, ensuring they proactively seek opportunities for collaboration and communication.
Operational efficiencies work to create a business that aligns its day-to-day activities with its wider business needs – an appealing strategy for investors seeking proof of long-term sustainability.
- Target audience
Understanding your customers’ needs at any one time is essential to ensuring you are targeting the right people. You are not looking to achieve a short-term surge in new customers, but more a long-term relationship with people whose needs are sustainable.
Investors will look for evidence that you have the right processes (and mechanisms) in place to attract and convert customers with a specific need for your product or service and that your cost of acquisition is low enough to meet the required profit per sale.
So, whilst generating sales is a must, it’s only relative to the level of return you’ll receive. The volume game is not always the most viable route to sustainability and evidence of mutually beneficial customer relationships can count for a lot more in the eyes of an investor.
In fact, retaining an existing customer is typically four times more likely than securing a new one so strong customer relationships are a great component of achieving long-term stability.
- Beneficial partnerships
In the early days of a small business, there is some cost sense in managing lots of roles and responsibilities internally. You are driving a business where ambitions are high and funds are few and far between, but as the business grows, holes can begin to appear.
You should show an understanding of the areas which would benefit from obtaining knowledge and expertise in return for a relatively low investment from you. This could include expert resource in the shape of marketing, finance, legal or banking services.
External partnerships work well to demonstrate a wider network of stability and provide reassurance that the areas of your business where you lack expertise are being managed for the long-term.
- Strong leadership
Driving ambitious growth within a business takes a leader with optimism, initiative and excellent decision-making skills. Investors will look to be inspired by the person (or people) leading a business and will take great confidence from those with the ability to see an opportunity in everything.
Being able to act under pressure whilst confidently implementing long-term strategic plans will provide reassurance that you believe in what you do. Sustaining business growth demands leadership with foresight, as well as the skills to carry a workforce with you.
An effective leader will therefore think about the future shape of the business by building a succession plan for implementation over a 3-5 year period, ultimately resulting in their replacement taking the reigns as the business hits certain growth milestones.
Proving long-term sustainability is imperative to attracting the right investors for your business but you need to plan for this in advance. Being open to seeking external finance can be the make or break of a growing business and can help to achieve stability along the way, even if it is just a short-term fix to get you from one month to the next.
Our blog looks at ten alternative finance solutions for plugging a cashflow gap.
So, if you’re looking to grow your business but need some advice on planning long-term sustainability, speak to one of our advisers for some expert guidance on how we could help. Our team can review your business and advise on any areas that might deter investors away from you.