Once your business has survived the start-up phase, it has a solid foundation to grow. Here are some major areas or functions of your company to focus on as you take it to the next level.
Financial and tax reporting
Businesses in the growth stage usually have more sophisticated financial reporting needs than start-ups. As a result, those that previously relied on cash- or tax-basis accounting methods may need to graduate to accrual-basis methods and follow U.S. Generally Accepted Accounting Principles (GAAP).
Lenders and investors may require CPA-prepared financial statements, which include the following (listed in increasing levels of assurance):
- Compilations
- Reviews
- Audits
Compiled or reviewed financial statements may suffice for most closely held businesses at this stage of development.
Once a business turns a profit, it usually owes federal and state income taxes (or tax obligations pass through to the individual owners if it’s not a C corporation). Midyear and year-end planning meetings with financial professionals are essential for finding opportunities to lower taxes now and in future tax years. Your financial advisors can also alert you to pending tax law changes that could affect your business tax situation.
Working capital management
Cash shortages are common for businesses during periods of growth. The main culprit is “the cash gap”— that is, the time between:
- When your business must pay suppliers and employees, and
- When it receives payment from customers
A line of credit can alleviate seasonal or temporary cash crunches. Lenders typically will request financial statements, tax returns and updated business plans before approving credit applications. In addition, owners of businesses in the growth phase customarily must sign personal guarantees for business loans.
Marketing
Once you’ve established a foothold in your industry, marketing is key to expanding your reach to customers. Company branding should be integrated into all aspects of business operations.
Strategic investments
Business growth examples include organic growth such as launching new products, expanding into new geographic markets, building new facilities and investing in new equipment. Your business has limited funding, so it won’t be able to pursue every strategic growth opportunity.
Inorganic growth comes from mergers and acquisitions by which you’re acquiring new revenue-building capabilities from external sources, rather than building them in-house. For instance, your company might acquire a competitor with a top-notch sales team, or it might merge with a supplier to become more vertically integrated.
Risk management
Two key business risks that growth businesses face today are:
- Fraud. This includes theft of assets, intentional financial misstatement and corruption. Fraud schemes may be committed by employees or people outside your organization — or they may involve collusion among multiple individuals.
- Cyber security. Hackers may gain access to your company’s systems to steal valuable data or install ransomware. Cyber attacks can be costly, interrupt business operations and impair value.
As your business grows, its insurance needs may change, and coverage levels may need to be dialed up (or down).
Human resources
Human capital is essential to growing your business. Hiring workers with the right skills and experience to fill open positions can be challenging today. You’ll also need innovative programs to enhance employee satisfaction, performance and retention. A positive and thriving workplace culture should be at the forefront of these programs.
A fundamental benefit that every business should offer to employees when it’s in the growth phase is an employer-sponsored retirement plan. Popular options include SIMPLE IRAs and 401(k) plans.
Ask the pros
Companies need guidance from experienced professional advisors as they mature. Do-it-yourself accounting and business planning can result in frustration and missed opportunities. If you haven’t done so already, discuss strategic growth plans with your tax and legal advisors. They can help determine the optimal path forward based on your business and personal situation.
