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It might seem like profitable businesses owe their success to luck, but, with few exceptions, their growth was the result of hard work and thoughtful planning. Today’s global economy requires that businesses distinguish themselves and prepare the challenges of increasing global economic volatility.

Of course, each business is unique. If you’re selling surfboards, your plan of action is going to look different than say, that of a children’s book publisher. One thing that all businesses should have in common, if they want to grow, is a solid strategic plan. If you’re ready to make the transition to big business, here are a few strategies to consider:

Secure Your Financial Health

Business growth is great, when you’re ready for it. Attempting to boost your business while dealing with financial woes can lead to disaster. No matter how great the product or service, looming debt, inconsistent budgeting and a shaky credit record will scare off potential investors and partners while ultimately shining through into poorer customer satisfaction.

The first step to achieving financial health is to build a comprehensive financial plan that includes contingencies for multiple scenarios. Your goal is to develop a document that lays out how your business will handle both the best and worst case profit scenarios. From then onwards, the right systems need to be put in place

Market Development and Penetration

If you’re already running a profitable business, you probably have a general understanding of your market. As your business grows, you’ll need to expand your knowledge of your key consumers and decide how you should broaden your reach.

Let’s say you’re a health food store owner. You’ve documented that most of your regular customers are between the ages of 25 and 45 and work out regularly. This is a good baseline for further development.

A low-risk market development strategy would involve ramping up your sales efforts and promotional activities to penetrate deeper into your existing target market. Knowing your market, you’d do better placing your promotional materials at a neighborhood fitness center than the local teen hotspot.

This might seem like a simplistic example, but many businesses end up drifting away from their core target market which can lead to scattered results and failure to thrive.

Market penetration tactics include price adjusting, to increase volume and attract additional customers and generating greater brand recognition through targeted advertising campaigns.

As effective as market penetration can be, once a market is saturated, growth can end up at a standstill. Market development can offer new opportunities for growth.

Expanding beyond your current market base could mean spreading into new geographic regions, improving a product or adding new products to appeal to a larger customer base. One market development tool that a health food store could implement would be offering web-based sales.

The key to market development is to expand your audience at a measured pace, so that you experience growth without making your offerings overly broad.

Explore New Products and Services

One way to grow your business is by trying something new. The same entrepreneurial spirit that inspired you to start your business in the first place can lead to substantial future growth.

Expanding your business by offering new products or services can help you to sell more to your existing customers and draw in new ones. This strategy can pose a risk, but it can also lead to huge rewards.

One way to expand is by improvement of products and enhancement of services. A new addition should make the product more valuable to your customer base and be difficult for your competitors to replicate.

Another way to widen your offerings is by adding an entirely new product. Your customer base might already be giving you an indication of what they’d like to purchase. The imaginary health food store has proven that it knows its customer base and offers quality food that meets the needs of its consumers. Branching out to offer a line of vitamins will appeal to the market while not straying too far away from its core competency.

Invest your time and energy into the development of products or services that meet the need of your target market first. If there’s a gap in the market, there’s probably a way that you can fill it and that can mean substantial growth.

Establish Business Partnerships

Speaking of that neighborhood fitness center, have you ever thought of partnering with them? Collaboration between businesses is an easy way to gain loyalty, expand customer bases and reduce expenses.

Business collaboration can take several forms. It might mean partnering with a business that sells complimentary products or services. It could also be a partnership with another business within the same industry.

There are several ways to collaborate with other businesses with growth in mind. Cross-promotion, utilizing shared facilities and cooperating on special projects are just a few ways that collaboration can save your business money and help it gain maturity.

Develop Integrative Strategies

Business mergers and acquisition might seem like a far-fetched plan for your business, but this is actually a doable strategy, even for smaller businesses. Unless you have access to unlimited resources, following a conscious game-plan and managing your timing when implementing this strategy is absolutely essential.

One scenario involves your business purchasing or starting a business that buys from or sells to your existing business. This business can be directed toward (forward) or away (backward) from the consumer.

If our hypothetical health food store purchased a vegetable farm, it would then have access to a consistent flow of whatever vegetables the farm grows. This backward vertical integration strategy can protect the store from a shortage created by multiple businesses vying for the same vegetables.

The second scenario assumes that an opportunity arises to purchase an existing health food store, in a different area of town. By acquiring this business, our fictional health food store not only reduces its competition, it also has an opportunity to assume additional customers.

Yet another scenario might involve a merger between the two health food stores. This horizontal integration could increase access to different products and geographical regions while reducing competition. Each store benefits from the skills and resources that are unique to that business.

Developing a strategic plan that includes action steps for multiple contingencies will allow your business to seize appropriate opportunities as they arise.

Preparing for growth is an exciting time in the life of any business owner. Set your goals and determine your strategy and soon you’ll watch your business soar to new heights.

It’s no secret that the Australian economy has done quite well over the last two decades. In a world that was plagued by several recessions since the early 1990’s, Australia has fared remarkably well; seeing steady increases in GDP, per capita income, and drops in the unemployment rate.

However, as history has taught us over and over, no country can sustain permanent economic growth. Eventually, Australia’s record run must come to an end. Shrewd company management and financial teams must be forward-looking; planning their activities well ahead of the next quarter to account for a number of possibilities.

As Australia enters its third decade of growth, some troubling indicators begin to appear. Slower GDP growth and stagnation in per capita income growth may be the first signals of looming economic issues. If Australia does indeed enter a period of economic turbulence, several attractive opportunities may become available to forward looking organisations. These opportunities may include:

Alternative Financing Practices

Organisations that sell directly to the end consumer may wish to begin exploring direct financing opportunities. In the event of poor or negative economic growth, banks are likely to begin cutting loans for items like home appliances, cars and other big ticket items. Manufacturers and distributors of such products may wish to start planning ahead for such a scenario through in-house lending strategies. Being able to offer direct financing to quality consumers may be a strong competitive edge in bad economic times.

Mergers

Turbulent economic times may present an opportunity for some companies to establish a larger presence in an industry. For example, during bad economic times, smaller companies tend to become cash-strapped relatively quickly. Being able to wield large cash reserves for purposes of buying out competitors can be a very powerful long term strategy.

Growing in the bad times 

There is always a glimmer of positive in anything that’s negative. Turbulent economic times are no different. One viable strategy can be to build up cash reserves to comfortably offer discounts to customers. Organisations with high debt and low cash reserves cannot do this and thus must proactively act to improve their cash position. An operator with a strong balance sheet can weather economic turmoil, retain their customer base, and even seize market share in the process – all of which will allow for a stronger rebound once the economy picks up.

Looking forward 

The possibility of persistent, strong economic growth is not highly likely. With nearly 20% of Gross Domestic Product depending on exports, the growth of the Australian economy is heavily dependent on economies of other major countries. Consumer confidence is likely to remain fragile and businesses must ensure that their practices are in line with consumer sentiment.
In this case, there are opportunities for Australian organisations in cost-cutting. Instead of capturing growing market share and attempting to gain more of the average consumer’s spending, companies will now need to cater to consumers who are becoming more wary of high costs. Without rises in salaries and per capita income, this will be absolutely essential for any company that will want to maintain its competitive edge.

Cost cutting is a dual process that on the one hand can include increased efficiencies in production, and on the other hand, lower costs of capital by optimizing capital structures through borrowing and equity buybacks. It must be measured, calculated and ultimately strategic so as to not significantly result in a deterioration of an organisations capabilities or competitive advantage.

The new Australian Federal Budget has been a bit of a whirlwind over the last few weeks. There are lots of numbers being thrown around and arguments continue as to how the budget will affect the country in the long term. Some suggest that the cuts to school funding will cause significant problems in the future, while others are up in arms about ‘Netflix’ style taxes.

However, one of the biggest developments in this budget is the combination of temporary tax breaks and perks being afforded to small businesses – those with a turnover under $2 million per year. All of this may sound great on paper, and is certainly being touted by the budget proponents as a way to steer the Australian economy toward decades of prosperity, but what does it mean for you in the real world?

1.5% Tax Rate Decrease

The Federal Budget provides for a temporary business tax decrease of 1.5% This decrease is intended to empower small businesses to invest in improving operational capacity by freeing up cash that would have otherwise been committed towards tax expenditure.

We welcome tax relief efforts for small to medium businesses and would have liked to see greater tax decreases that would have helped make Australia more competitive amongst countries such as Singapore, which currently has a 17% company tax rate. We eagerly await the Tax Discussion Paper due to be released later this year.

Shrewd small businesses should take advantage of the tax savings in a way that provides a cushion for the future. For many small businesses, even a few thousand dollars can provide a great cash flow cushion. If you’ve experienced cash flow deficits in the last 12 months (where you couldn’t pay a bill because of cash flow issues) you may wish to consider setting aside these tax savings in a separate business account for a rainy day – it might just save you from losing a vendor or an employee.

$20,000 Write-Off

One of the most exciting aspects of the new budget is the $20,000 tax write off being afforded to businesses for equipment purchases. This can be very good news for businesses that need to invest in new or additional equipment.

Prior to this budget, such purchases could only be written off gradually by depreciating the asset over several years. Under the new guidelines, the entire amount of the purchase can be written off immediately – no depreciation required. This results in quicker realisation of the associated tax benefits of the purchase.

Let’s say a business makes a purchase that costs $15,000. Before the budget, this amount could be written off at approximately $3,000 in the first year, giving you a tax saving of about $855. The amount would continue to be written off year by year until the item is fully depreciated. Under the new budget, you are able to write off the entire amount, which gives you a tax savings of $5,700 in the same financial year. As a result, the business is able to generate $4,845 of extra cash flow for the year – money that can be used for further expansion.

The one downside of the $20,000 write off is that it may push some businesses to get new equipment when they don’t really need to, or don’t have the additional customer base to warrant it. Whereas the slow depreciation allowance forced businesses to think through the purchase more carefully, the new immediate deduction may push some to take extra risks.

Fringe Benefits Tax

Another welcome development in this budget is the expansion of the Fringe Benefits Tax exemption to portable electronic devices such as laptops. As a result, such items are no longer subject to Fringe Benefits Tax.

Cash flows are the life blood of business. They dictate when, how and if a business will survive, thrive or perish. A properly executed cash flow strategy can represent immense opportunities for growth. A poorly executed cash flow strategy can grind an otherwise profitable company to a screeching halt.
 

Managing working Capital

Working capital refers to the ability of an organisation to cover day-to-day expenses and short term debts. It’s like the air that fills your lungs; there must be a certain volume for your business to continue breathing.
 

If working capital isn’t properly understood, measured and planned for, then the potential impacts upon cash flow can be severe. Employee salaries and short term payables, for example, cannot be delayed and re-negotiated very easily (as opposed to a line of credit, for example) without directly affecting operations through bad employee morale, negative vendor relationships or potential legal repercussions.
 

Working capital cannot be understood through one measurement or ratio. It must be extensively analyzed through multiple perspectives because it is easily susceptible to distortion. Depending on your business, you may wish to consider also measuring working capital as a percentage of sales revenue and as a percentage of assets.
 

It’s also important to consider other measures that provide a a broader understanding of the working capital in your business, such as looking at the rate of inventory and accounts receivable turnover.
 

Regardless of which indicators you decide to use, working capital is best measured through multiple time frames. Comparing working capital on a monthly, quarterly and annual basis is usually a good starting point, however many businesses may require more frequent measurements.
 

Structuring Debt

Many loans are structured to require large payments at the end of the loan life. These loans are designed to allow your organization to have more working capital in the early stages of growth. In this scenario, you will have to plan very carefully to ensure that operations can provide sufficient cash flow to make these large payments on time.
 

One strategy is to set aside a reserve, where extra funds can be accumulated ahead of the scheduled payments. Or, it may be wiser to pursue a new loan to refinance the upcoming balloon payments and defer actual cash outflows until a later point in time.
 

If you’re relying on the latter strategy, time can either be your friend or your enemy. If you wait to begin loan negotiations too closely to the balloon payment date(s), you may not be able to refinance in time, or may end up accepting less favorable terms because of the pressure. This doesn’t just hurt the company’s bottom line and value for the stakeholders, but directly hurts the organization’s cash flow position.
 

In an even worse scenario, original financing may have been provided not by a bank, but by a private investment entity. In such cases, the loan may carry an option to convert outstanding balances into an ownership interest in the company if payments are not made on time.
 

Something like this can be very difficult to renegotiate with the original lender, as the original agreement will often allow for a purchase of ownership interest at very favorable terms to the original lender.
 

Managing Tax

In many ways, tax planning can be the hardest cash flow aspect for an organization to manage. It is simply the one where finance staff have the least control. You can’t change tax laws; you can only follow them.
 

There is a very clear distinction between losing tax credits and other cash outflows. For example, loans can be negotiated and upcoming changes in cash flows can be deferred until a future date when profits are higher.
 

This level of flexibility rarely exists with issues pertaining to tax. Because of this dynamic, tax planning becomes very much about legitimately reducing tax liabilities, whilst managing expectations and eliminating surprises. It becomes the job of the finance department to make sure that all relevant parties in operations are fully aware of possible budgetary changes well in advance.
 

Getting bad debts under control

A great number of businesses suffer from one problem; they find it difficult to predict and respond to customers not paying.
 

There are two ways to reduce the risk of bad debts. Firstly, traditional measures should be implemented by the CFO, such as;
 

• The implementation of credit checks and standards along side well thought out credit limits.
• A regular reassessment of customer credit worthiness
• Clearly defined payment terms and conditions
• Efficient internal procedures detailing policies relating to the collection of bad debts
• An efficient accounts receivable arm that will promptly follow up outstanding payments and adhere to internal collection policies.

It’s also vital to ensure that preparations are made for the non-collection of outstanding payments, not just by making accurate estimates, but by having sufficient cash flow reserves and revolving lines of credit to survive dips in cash inflows.
 

In addition to this, bad debts can be reduced through direct communication with elements inside the organization that have extensive knowledge of customers. In many instances, relying just on facts and figures in isolation is inefficient. Understanding the dynamics and situation of a customer will allow for a more accurate assessment of risk.

Being a business leader means being comfortable with a certain amount of risk. Unfortunately, businesses can be exposed to too much risk. Luckily, there are measures that can be employed that will help you to minimize risk without stifling entrepreneurship.

1. Create a Risk Management Plan.

Developing a strategic plan is a must, but if it doesn’t address potential risks, and how your business will handle them, you could be exposing it to peril. Risk management plans should be customized and could include processes for preventing accidents, succession plans for key employees and even disaster preparedness activities.

Determine the risks that your business night face, and what the cost would be if they occurred, versus the cost required to prepare for them. After determining potential risks, create “if-then” scenarios that clearly outline your expectations. The plan should be comprehensive, without going overboard. After all, you would not want to waste resources planning for events that are highly unlikely to take place.

2. Insure your Business for Specific Risks.

Investing in bare-bones insurance will not provide your business with protection it needs. Chances are, your business faces specific risks that are unique to your industry, location, and customer base. General liability insurance doesn’t always cover potential hazards that could cripple your business. Even businesses that purchase compulsory workers compensation and third party personal injury policies might not have the coverage they need.

Consider all aspects of your business and the risk factors associated with each. If you operate expensive equipment, what would happen if it were damaged? Could you recover if a fire wiped out your product inventory? Is your business prepared for potential litigation?

3. Develop Financial Systems

When the right financial systems are in place, employees have immediate access to the data needed to make appropriate decisions in times of crisis. Financial systems should include measures that prevent overspending and authorize only specific employees to take financial action.

Relying on a financial system that does not incorporate regular reporting and checks and balances opens your business up for costly accounting mistakes and even fraud. An appropriate financial system will allow leaders to understand cash flow and forecast upcoming expenses so that overspending does not occur.

4. Diversify

Without access to cash, your business could end up in serious financial distress in the case of a crisis. Setting up a reserve account will provide a cash cushion, but it shouldn’t be the only emergency funding your business should have access too. Businesses that rely too heavily on debt put themselves at risk, but not having access to credit can also pose a risk.

The availability of a good mix of cash, credit or borrowing power and inventory will minimize financial risk and allow your business to keep its doors open, should the unexpected take place.

5. Watch Trends

To minimize risk, look out for trends within and outside of your business. Monitoring the financial progress of your business and identifying specific trends will help you to anticipate problems and work proactively to prevent them.

Yes, you should strive to be a market leader, but it’s also important to keep an eye on what others in your industry are doing. Discovering trends that have led to the failure of other businesses can provide you with the knowledge that you need to keep your business safe.

No business leader, no matter how talented, can predict every potential business risk. The good news is, many risky situations can be identified and planned for. By sticking to a plan and learning from the mistakes and successes of others, you can minimize your business risk.