Here's a recent video to expand on this concept

One of the most regular requests I have had, and continue to receive from my clients is the following question: “How do I fund the growth that I want in my business?” closely followed by “How do I take my team along with me so that we are all growing the business?”
Here are some key pointers that as a business owner you need to consider and execute to achieve a successful business growth target.
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• Set a realistic target
  • Make sure that your growth target is SMART:
    • Specific: What are the revenue, market share, customer engagement, gross margin, net profit, cashflow, and market position components of your goal?
    • Measurable: Have monthly actuals, along with month to date, and annualised actual results, and compare these against your forecast.
    • Achievable: Make sure that your growth goal is both challenging, but also not set too high. At the same time, don’t make your goal too easy to achieve.
    • Realistic: Make sure that the time forecasted to achieve your growth goal is realistic. No point in having a realistic 2 year goal, and trying to achieve it in one year.
    • Time Based
      • A growth goal without a timeframe is simply a statement of intent, or at worst simply a hope.
      • When making your growth goal realistic, ensure is has a clear timeframe.

• Take your team with you
  • You need to adopt a “Clarity, Visibility, Ongoing Conversation” Approach:

• Clarity – make sure that your team is clear regarding:
  • The overall growth goal;
  • Their role in the overall growth role;
  • The roles of each person in the team, how each person will contribute to the growth goal;
  • How all the efforts of each team member come together to help you achieve the growth goal.

• Visibility
  • Make the growth progress visible:
    • In a way that is totally clear;
    • In a place that is seen every hour of every day;
    • To all teams, and every person in the business.

• Ongoing Conversation
  • Minimise if not abolish formal meetings.
  • Have an ongoing conversation about the clear growth goal, using the information that is visible. This helps bring the team and all the people in the team together and moving forward together.

• Have funding in place
  • More growth goals fail due to lack of funding, or insufficient funding than any other cause.
  • Start with your SMART target
  • Banks need a financial forecast, which forecasts per month the current year, and at least the following year.
  • The financial forecast needs to:
    • State the basis of the forecast -i.e. the assumptions
    • Include the last 2 years business performance at minimum (if the business has been trading that long), as this places the forecast in the context of what has already been achieved
    • Forecast the profit, the cash flow, the Balance Sheet, and the difference between the profit and the cashflow (this is called funds flow).
    • This forecast is known as an “integrated financial forecast” and without this, banks will not usually provide the level of funding needed.

• Monitor your Progress
  • You need accurate monthly actual data.
  • You need to compare your actual results with your forecast and then:
    • Identify what you did well, and do more of that.
    • Identify what was done poorly, and do less of that.
    • Repeat this process monthly.
    • Create trends of your performance Vs your forecast.
    • Share this with your team, warts and all.
    • Ask them for their ideas to improve performance

• Keeping Positive and Realistic
  • Growing a business is never easy, but it is more than possible.
  • Be kind to yourself as leader, as well as your team, but also set your performance expectations.
  • Ensure that your expectations for yourself and your team are met by:
    • A realistic SMART growth goal in the first place;
    • Share progress clearly, visibly, warts and all;
    • Engage your team while sharing progress;
    • Build your team’s buy in to the goal.
    • Reward yourself and your team together, using any of the following human “rituals”:
      • A simple food based gathering;
      • Celebrating team and business milestones – birthdays, growth goal achievements, major life events within your team that are positive and not sensitive to disclose; the birth of a child, an educational achievement etc.
    • Remember, no business or team can achieve goals exactly as planned. There will be setbacks and successes. Share all of these as a team, as achieving a goal is about recovering from setbacks, and celebrating success.

Email:mfulton@advantagebusiness.co.nz Mobile: 021-900-001Sounds technical, and there is an element of accounting acronym that unfortunately I can't get away from. My intention in this post is to attempt to take an arrangement of complex material and make it easy to comprehend.

By increasing your Gross Margin, you will at the same time increase your Profit and Cashflow:

For example

• Say your current annual business revenue is currently $5 million
• At a 30% Gross Margin, in $ terms, your Gross Margin is $1.5 million.
• If your costs are $1m per annum, then your Profit per Annum is $0.5m before tax.

What would happen if your business increased its Gross Margin to 40%, and what would be the likely result?

• Using the example above, a 40% Gross Margin on $5 million annual revenue is $2 million.
• This is a $0.5 million increase in Gross Margin.
• If you are like most businesses, between 70 and 80% of this $0.5 million Gross Margin would flow to the bottom line; that is, increase profit.
• This would mean your $0.5million profit before tax would increase by another $0.4 million (assuming that 80% of the $0.5 million Gross Margin would flow into Profit.
• Your Profit before Tax has therefore increased from $0.5 million to $0.9 million – an 80% increase.
• If your business then collected 95% of this profit over time, then your business an additional $380,000 in cash to utilise over a year – i.e. $31,000 per month.

Why does 70-80% of an increase in a Gross Margin increase flow into Profit?

Because the costs that your business pays in arriving at Gross Margin are direct costs; incurred to produce the Gross Margin! This only leaves minor overhead costs (i.e. the 20-30% that does not flow to profit), resulting in the 70% - 80% profit increase.

How Can you Increase your Gross Margin?

1. The first key is to focus on client value, rather than cost to produce.
   
   
2. The second key is to understand at a deep level the benefits that your prospects and customers are looking for; both now, and benefits that you could deliver that they are not currently aware of.
   
   
3. The third key, and probably the most critical is to ensure that you measure and manage your Gross Margin (at minimum monthly), so that you can then manage and measure the improvement in Gross Margin as you increase it.

If you are interested in better understanding how to increase your Gross Margin, the make contact with me, as per my details below:

Murray Fulton
Director
Advantage Business Ltd
Email:mfulton@advantagebusiness.co.nz 
​Mobile: 021-900-001