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NEWS - PLANNING
Strategy vital for the long haul
12/5/2003
Small- to medium-sized enterprises that plan to grow over the next year and sustain that growth for the long term better have a comprehensive strategy to ensure they are around well into the future, advisers warn.
Almost 60 per cent of publicly listed, private and family-owned businesses in Australia's emerging market surveyed by Deloitte Growth Solutions have forecast growth rates of 6 to 20 per cent over the next year.
In contrast, the 2003 federal budget predicted a 3 per cent growth rate for the economy.
Similarly, the BDO/RMIT Australian Business Growth Awareness Study reveals some impressive figures. Of about 400 SMEs surveyed, 95 per cent give growth as their main objective and 74 per cent are in the process of expanding.
This confidence has prompted advisers to warn ambitious SMEs to have the right tactics in place if they want to be around in 10 years.
"While they are confident and buoyant about their own business, they can't take their eyes off external factors like the interest rate environment and what is happening overseas," the managing partner of DGS, Walter Dinale, said.
This week, the Committee for Economic Development of Australia will team up with BDO in Melbourne to launch a series of seminars that will show fast-growing SMEs how to sustain their growth.
"Many successful small businesses don't manage their growth well. This will show them how to be around in 10 years," CEDA chief executive officer, David Edwards, said.
Although business advisers can quote lists of mistakes made by SMEs that undermine their chances of success, five blunders regularly appear in their comments.
One, they do not have a strategic plan.
"Without a plan, a business will struggle to grow," a partner with Brisbane-based BDO Kendalls, Bernard Curran, warned.
A good plan is a documented list of actions that addresses weaknesses and exploits the strengths of the business, and which is communicated to management and staff.
Point two is poor management structure.
"The failure to adapt the management structure as the business grows means it can come to a screaming halt or maybe go backward," said Chris Alp, a partner with accountants Grant Thornton.
Third, and it is closely aligned with the previous reason, is ensuring that family business owners let management do its job. It does not want to be distracted by family squabbles about the direction of the business.
Four, growing in too many areas at once can result in a loss of focus that can be catastrophic.
The most popular growth strategy in the Deloitte survey is new-product development. According to the survey, 24 per cent prefer this strategy, while new distribution channels follow closely at 23 per cent.
However, Mr Alp said that developing new products and markets was the highest-risk growth strategy and the most expensive.
"Many fail to talk to existing clients," he said. Based on visits to 50 to 100 businesses a year, he estimated that 75 per cent did not consistently talk to their clients about their products.
"If they put a quarter of the resources into their existing clients that they put into new products, they would make a lot more money."
He said the best growth strategy was delivering the best product (high margin) to the best client (high value). And if that meant culling time-wasting whingers, so be it.
"A growth strategy that is not linked to profit is a deadly formula," he said.
While he admitted that new-product development was a high risk, Mr Dinale said that if Australian companies wanted to sustain a competitive edge, they must do more research and development.
Finally, rapid growth can be a negative if it puts a strain on funding and the organisation, particularly its people. A growing business needs the right people to support growth and cannot afford to have high turnover levels. Peter Jordan, a partner with BDO, recommends that businesses look at their financial health well ahead of any planned capital raising.
"Some don't think in terms of their capital-raising potential and which options are available until they are close to the time when they need the money."
Reproduced from the Australian Financial Review - 5 Dec 2003
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