Many businesses today are in a position to enhance the worth of the enterprise by growing their operations. If you’re thinking about the next stage in your firm’s evolution, it’s critical to evaluate toward the long-term by developing a strategic growth plan.
In our experience, the most effective road maps focus on the four core value drivers of a business: expansion, technology, risk management and financial.
Expansion
The first step involves researching the competitive landscape to identify potential channels of expansion, whether from new products and services or extensions of existing products in additional markets.
Expansion may also involve changes in your distribution model and the way you deliver your product to customers in person or online. Growth can be achieved in non-organic ways as well, through acquisitions, strategic partnerships and alliances.
Technology
Investing in the right technology enhances scalability, or the capacity to add volume without ramping up costs.
Technology also plays a major role in a company’s growth plans by automating and streamlining processing in treasury and finance functions. Examples of technology opportunities include:
Receivables solutions, such as lockbox, remote deposit capture and e-commerce services, enable companies to minimize collection float, collect funds faster and reduce days sales outstanding (DSO).
Consolidating payables helps businesses automate functions, reduce costs across the entire payments process and achieve tighter control of cash flow.
Purchasing cards streamline company purchases made by employees and enhance supplier relations with faster payments.
Treasury information management systems deliver integrated balance and transaction reporting to strengthen decision making.
Liquidity and funds management tools, such as investment and credit sweeps, provide management with the ability to maximize daily cash positions and pay down debt or invest over the short-term.
Financial
Successful expansion plans require sound financial projections over the planning horizon. Setting specific milestones or targets – for earnings, profitability, cash flow and capital – gives the business well-defined standards for measuring achievement.
Financial forecasts can help identify potential obstacles and avoid situations that could bring growth initiatives to an abrupt halt. More importantly, detailed and reliable financial projections give confidence to lenders and investors when financing is needed.
For growing companies, long-term financing needs can include funding for purchasing or constructing buildings, acquiring companies and purchasing machinery or equipment. In addition to traditional bank loans and lines of credit, growing companies may find that other vehicles can meet their funding requirements, such as:
Equipment leasing, which allows a business to grow while preserving working capital and gaining access to the latest technology.
Asset-based financing, which helps businesses where working capital assets dominate the balance sheet and there is a need to fund growth.
Risk management
Effective risk management is an important driver of business valuation. Companies must identify internal and external risks as they grow and then develop plans to mitigate their exposure. In addition to liability and asset protection insurance, effective risk management strategies incorporate financial risk tools, including:
Interest rate hedging instruments such as swaps, options and collars, can enable companies to control borrowing costs and bring much-needed certainty to their financial outlook.
Letters of credit, documentary collections and foreign exchange services help reduce the risk of international trade.
Automated payments and treasury functions can help businesses guard against payment fraud and protect bank accounts.
Your growth plan needs to incorporate regularly scheduled reviews of your internal controls to ensure that taking advantage of new markets and opportunities does not increase your company’s vulnerability.
Remember, no matter how good a plan is there will be bumps in the road. Be prepared for them with contingency plans that will help you address challenges as they arise, and reach out to your advisors who can help guide you as you grow your company’s value.
Jeff Taylor is assistant vice president and relationship manager for business banking in KeyBank’s Vancouver office. He can be reached at 360.449.8059 or at jeff_w_taylor@keybank.com.
