You’ve pitched your idea; done your research; maybe you quit your job and re-mortgaged the house. The first two years you made almost no money, investing all available funds into your business. But you made it, right?
Congratulations, you certainly did! Starting a business is hard. Getting a small business established is even tougher and the majority of entrepreneurs fail at this stage, even if they can ensure suitable business funding. If you want to really add value to your enterprise, your local community and the economy, you need to step up a gear at this point.
This is the classic ‘next level growth’ trap: scaling up from a small firm with a couple of employees to a healthy, growing SME that creates valuable wealth and employment is very different from making an initial idea work and requires different leadership and business skills and the financing that is needed is also on a different order of magnitude: You will probably need to either meet new investors, or move beyond the business overdraft and secure more powerful forms of funding.
Scaling-up Business is Important for the Economy
If successful start-ups cannot be transformed into thriving medium-sized businesses, most of the advantages touted for an entrepreneurial economy are lost. Quite simply, a company growing from zero to five employees creates fewer jobs than one which scales from ten to thirty – even if the headline growth rate of the former sounds better. The same can be said for other metrics such as sales, profits, taxes paid, or supplier contracts issued.
It is therefore crucially important that we support not just start-ups, but SME owners who have ambitions to enter new markets, launch more products and hire more workers.
John Anderson, Head of SME Engagement at Strathclyde Business School in Scotland, is leading a ground-breaking program that helps SME’s reach the elusive next level. Mr Anderson said the key barriers to achieving next-level growth fall into three categories: innovation, skills and people.
Anderson says many of the entrepreneurs who arrive at his iGAP course do not even have a management team in place. Instead, they are still trying to do everything themselves – even areas they are not skilled in.
“Reaching the next level of growth involves re-inventing the business,” he says. “We encourage leaders to develop the tools to build a team and trust those people to provide excellence in their field. The founder needs to move away from the day-to-day and take a strategic, visionary role.”
What About Financing?
Many people will be surprised not to see business funding on the list of barriers to growth. However, Anderson points out that funding is available – if only businesses know where to look. He effectively puts the funding problem into the people and skills categories.
The funding needs of a scale-up business are very different to that of a start-up, and many younger entrepreneurs simply don’t know where to turn. Is it equity finance that they are seeking, there is no substitute for knowing the right people. That is why ambitious companies are encouraged to take on a senior chairman who mixes in the right circles. We have also recommended tapping into your accountant’s contacts or bringing in an external CFO.
For those not wanting to give away a share of their business at this stage, then there are now far more options available than the old business loan – until recently the go-to form of SME funding. Factoring and Invoice Financing as well as Trade Finance and Supply Chain Funding are all part of this exciting and useful mix of cash flow funding solutions available to growth businesses.
Every business is different and has different funding needs, so the fact that many options are available is good news for owners looking to reach the next level without handing most of their profits to equity investors. The team at OptiPay would be happy to advise on the various forms of flexible invoice discounting, Trade Finance and Import Finance that we offer – and how you can use them to grow.
“Get Tomorrow’s Cash Flow Today”