As part of the festival, 250 of the nation’s most rapidly growing firms – including Smart Currency – were selected to form Accelerate 250, in order to bring together firms from a diverse range of industries to examine the challenges and risks specific to fast-growing companies. Lord Young, the Prime Minister’s enterprise advisor, hopes the Accelerate 250 group will become a force for identifying and developing solutions to growth barriers, ensuring rapid expansion can be nurtured for the good of the British economy and employment.
Meanwhile, a Government-funded private enterprise scheme, GrowthAccelerator, is providing leadership training and expert mentoring for English SMEs that are currently experiencing rapid expansion or have immediate plans to do so.
However, businesses achieving high rates of growth generally don’t happen by accident. There are certainly start-ups which surge rapidly on the back of a breakthrough idea, or unforeseen factors which significantly boost trade volumes. For most businesses though, fast growth is the result of hard work, investment in core products or services and a substantial support framework.
This planning is crucial to enable firms to ensure their rapid expansion is sustainable for the longer term, instead of falling victim to a “boom and bust” scenario. With that in mind, here are five areas that are common roadblocks for even the most successful of companies, and what can be done to minimise their impacts and avoid derailing expansion:
1. Lack of diversification
We have all heard the expression about all the hypothetical eggs being placed in a single basket, yet many businesses fixate on operating within a single market. This is one of the key lessons to be learnt from the Eurozone debt crisis – that heavy exposure to a single country or region can become a significant burden on a business when trouble strikes.
The UK Government is trying to more than double current exports to a target of £1 trillion by 2020, with an emphasis on encouraging firms to tap into the high rates of growth in emerging markets.
By doing so, fast-growing British companies can yield even higher rates of growth than they are capable of achieving locally, while simultaneously diversifying the source of their imported materials and destination of their exports to shore up business continuity even during times of crisis in a particular region.
2. Insuring trade debt for survival
Figures suggest that around 50 per cent of SMEs fail within five years, with cashflow issues undoubtedly a driving force. Despite the high risk of failure, however, a great many firms operating internationally do not insure their trade debts against defaults or shipping delays.
Calculated as a percentage of turnover and dependent on a range of factors (such as financial and operating history as well as the value of trades to be covered), credit insurance protects businesses from adverse exposure to delayed payments, invoice defaults and the losses caused by freight disruptions. Costs vary anywhere between 0.1 per cent to 1 per cent plus, meaning a firm with turnover of £1 million could insure a critical trade for as little as £1,000.
The British economy relies heavily on the output of SMEs, hence keeping these businesses alive and profitable is in everyone’s best interests. By taking out insurance over their most valuable assets – their exports and imports – directors can do their part to alleviate massive risk exposure should the worst eventuate, and perhaps even save the company from becoming another failure statistic.
3. Currency strategies
Companies large and small often struggle with currency risk when trading abroad, however the crucial difference is that big businesses have the resources to absorb adverse currency movements.
Many fast-growing firms find themselves looking to new overseas markets to fulfil orders or maintain their impressive expansion trajectory, yet it can be all too easy to overlook the role of currency markets in the profitability of such trades.
Rapid growth does not provide immunity from short-term shocks or a longer term decline in competitiveness at the hands of exchange rate movements. And as Sterling’s dramatic falls last week show, drastic currency movements can and do happen.
Any company exporting for the first time, or expanding into a new market abroad, should devise a currency strategy – examining the risks from currency swings on profitability of individual trades, budget consistency for regular trades and the overall costs associated with making trades.
4. Government assistance
Studies have shown that most SMEs lack awareness of the scope of Government assistance to growing businesses. In a survey of Smart Currency’s own clients earlier this year, just 12 per cent of respondents admitted having greatly or somewhat benefitted from Government assistance; half said they had received no support at all.
While there is criticism that the UK Government does not do enough to support SMEs when compared to the likes of Germany for instance, a major problem is that allocated resources are not being used to their full potential simply because so few businesses are aware they even exist.
UK Export Finance provides public-funded loans and assistance for companies to begin or expand their exporting ambitions. UK Trade & Investment (UKTI) has a number of support measures available, from funding grants, trade delegations, research and development subsidies and support for overseas market research. Additionally, there are various support mechanisms at home that provide access to expert consultancy and mentoring, as well as grants for start-ups.
Knowing that support mechanisms are available to growing businesses, SMEs would do well to invest some time in researching which measures they may be eligible for.
5. Skills shortages
Skills shortages can affect any business, yet companies experiencing rapid growth – particularly due to bullish demand for an innovative new product or service – can be hard-hit by a lack of skilled employees.
An active hiring plan will help put the company’s best foot forward in attracting new staff. Staff referral incentives, creative marketing of vacancies, stock options and a demonstration of ongoing career opportunities can all be used to boost the intake of potential candidates for new positions.
As well as struggles with taking on staff capable of hitting the ground running, high-growth firms have the potential to be knocked for six if key staff members decide to leave, taking with them all their knowledge and contacts.
Having a structured staffing plan in place can be beneficial in these incidents. Such a plan can demonstrate fall-back options should someone leave, a training schedule to rapidly train up new and existing staff and a detailed handover process to ensure knowledge, contacts and requirements are captured before a staff member does vacate their post.