Business Constraint

We often speak to small business clients about how much they want to grow their businesses, and the very next thing that they tell us is that something is “holding them back”.  Curiously, we also find that they are not always clear on what that “something” actually is - or, when we dig a bit deeper, we find that their real business constraints might be quite different from what we were told.

 

Many business advisers don’t spend enough time thinking about their client’s business constraints and helping to resolve them.  But we’re here to help - so here are our “Top 10” business constraints that might be holding your business back, and some tips on how you might tackle them:

1. Your Strategic Plan

It's true - “you can’t go if you don’t know”.  If you don’t have an up to date Purpose and / or Goals, you won’t know what you want your business to achieve.  If you don’t design strategies or assign people (including yourself) actions to make them happen, you probably won’t even get started on bringing your business dreams to life.  Finally, your Strategic Plan is a great place to capture your major business constraints, as part of your Risk Management strategy.

So if you haven’t got an up to date Strategic Plan, get one now - it will not only help you execute your business growth plan well, a great one will also make your business a lot more valuable to potential buyers.

2. Your Products

Many small business owners start out by coming up with a great product - but over time it may become outdated.  Alternatively, maybe you don’t have the right “go to market” strategies, and your customers can’t find you.

There is no substitute for a great product, and having a plan to market and sell it.  And once you have that, make sure you invest in refreshing (or even replacing) it and perhaps adding complementary offerings, targeting new markets and finding better ways of reaching and delighting your customers.

3. Your People

Everything important that you do to establish and grow a great business will require people to do something.  It could be designing, making or selling your products.  It will definitely include your own role as a business leader.

If you aren’t hiring the right people, invest in doing that better.  If your people are good but aren’t performing, coach or train them until they get there.  If they aren’t organised to succeed, invest in your structures and roles.  If you can’t keep them, get help with retention and development systems.  If you need to do better as a leader, ask for help - most great leaders are made, not born.

Finally, make sure that everything you do with and through your people is aligned squarely with your Strategic Plan, and will keep you and them focused on delivering it quickly and well - so you might need to look at your team and individual rewards and incentive systems too.

4. Your Internal Systems

Do you remember how you boasted about running your start up business “lean and mean” ?  Many people building their own businesses use “good enough” tools of trade, eg bespoke spreadsheets, rather than investing in software that is designed to do that work better (and more reliably).

At some point in most growing businesses, cheap substitutes become “unfit for purpose” and you will need to invest in the right systems to eliminate that business constraint - for example, if you have an FMCG business, you will need a system that manages inventories and provides packaging labels.

Our pro tips are:

  • Sit back and take a critical look at what you really need automated and recorded, from a business information and processes point of view, to support and sustain your planned growth.

  • Then look first at “industry standards” to see if they really fit your needs - nearly every business fits sufficiently into a specific industry that is already serviced by good software developers and application hosts, and those systems are almost always very cheap compared to the “opportunity costs” of not having the right tools, eg through lost sales or cost overruns.

  • Only commission customised systems if a Cost / Benefit analysis shows conclusively that they are worth the extra cost to acquire, time to implement and their inherent maintenance risks.

Don’t forget investing in your non-IT systems too, eg your sales targeting, budgeting, forecasting and pricing policies and processes.

5. Your Premises

We’ve all heard it: “I’ve just realised that I don’t have anywhere for the new guy starting on Monday to sit”.  If you are growing your business and you are committed to a fixed premises model, it is highly likely that you will either be paying for space you don’t yet need for a while, or otherwise having to change your premises in a hurry to accommodate more people, equipment and (perhaps) inventory.

Fortunately these business constraints are easier than ever to address.  For example, the Coronavirus Crisis has taught many businesses that their people can work remotely for at least part of the time.  There will also be lower cost opportunities later in 2020 for businesses that are resizing to move to smaller or larger premises, as other businesses need to adjust their footprints and costs.  Finally, there are some great advisers out there who can help you with your premises strategy and tactics - here’s one that we regularly recommend to businesses that rent commercial premises.

6. Your Production

Similarly, if you have production processes and facilities that have fixed capacity, you might find that you can’t fulfill your extra sales orders, or quality may deteriorate - or even both.

Don’t forget to include capacity and capex modelling in any business growth plan.  Actively look for potential “bottlenecks” - in our experience, the people on the shop floor usually have a very good idea where and when capacity problems will occur, so make sure that you ask their advice on what you might need to do differently.

There are also increasing opportunities to outsource production and logistics processes in most major Australian cities and regions, at least for the short run.  For example, we have a client that is ramping up sales of a great new product line that will outgrow their existing capacity, however we advised that they have former competitors who are likely to exit the market in the very near future whom our client could buy equipment or rent space from, and probably at a bargain price.

7. Your Funding

Your investments in your people, systems, premises and production will all have to be funded, and many small businesses are inexperienced at sourcing commercial finance on reasonable terms.  The good news is that the finance market for Australian small businesses has started to grow again through the entry of new lenders such as Judo Bank, and through government policy pressure on the big banks.

Always remember, however, that you will need a great business plan and the proper modelling to show lenders that your growth project is worth funding - so make sure that you have the right advisers holding your hand through that process.

8. Your Structures

Just like your systems, your legal and financial structures may be fit for purpose as a start up but may rapidly become unworkable business constraints as you grow.  For example, we recommend against sole traders becoming employers due to statutory risks that are better managed through corporate structures.

We also recommend that business owners do not take on partners unless they have formal agreements in place that anticipate and manage disputes and other risks.

Every business structure has pros and cons, from a taxation, risk, cost, complexity and flexibility point of view, so make sure that you get the right advice in advance from experts such as your accountant, your financial planner, your lawyer and your insurance broker.

9. Your Advisers

No-one knows everything they need to know - we think that every small business needs trusted advisers who can help by spotting business constraints before they become an immediate threat, and recommending ways to overcome those challenges.  Unfortunately many small business owners prefer to rely mainly on their own experience or on “amateur” advice from existing networks - in our experience that normally leads to major mistakes as time goes by.

There is no shame in admitting that you might need help - and remember that you will have to pay a fair price for good advisers, which should be well worth it compared to the value of your opportunities and the likely costs of making mistakes through inexperience.  

10. Yourself ?

This is, in many ways, the biggest and most underestimated business constraint of all.

I’ve already discussed how you should consult with others both inside and outside the business where they may have better knowledge than you.  But you also need to think carefully about your own personality and preferences, and how they might be holding your business back - for example:

 

  • You may be so focused on potential profits that you don’t even want to think of your constraints and risks.

 

 

  • You may be so focused on potential loss that you can’t be convinced that your opportunities are worth seizing.

The best news is that if you start thinking critically about your constraints, including those within yourself, you are halfway to overcoming them.  And if you need help to see them clearly, we’re always here for you.

Matt McDonald

About Matt McDonald

Matt has been a Chartered Accountant since 1991, a Chartered Secretary since 2004, holds a Bachelor Degree in Commerce and a Masters Degree in Legal Studies and is also a former Certified Internal Auditor.

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