The risks of growing a business

House of cards

Photo by Simo Bogdanovic Alamy

This is the summary of the Guardian “Ask the Experts” web chat about how to manage the risks in starting or growing a business:

Should a small business ever turn down a big client? When is the best time to take on an accountant? During our live Q&A on how to manage risk in business, our expert panel were quizzed on these topics and more.

Reader Sunil Singh kicked off with a two-part question on risk and funding: “How do you determine the level of risk you should take in your business? What are the key areas to look at before making a decision on how much lending you should initially take on?”

Rahul Parekh, founder of online restaurant and gourmet takeaway business,EatFirst, said: “I would suggest starting with a clear business plan to understand what your initial and ongoing capital requirements are.”

From there, decide if your business will be making money from the start or if you will need capital in order to set up and allow time for your enterprise to generate cash.

Business mentor Ann Hawkins, managing director of networking group, Drive the Network, said: “That depends (like so many things) on your circumstances. How long would it take you to pay off your debts if it all went wrong? Are you prepared to take a job? Can you get investment instead of a loan? These are all factors that should be taken into consideration before taking on debt.”

Ben Baruch, finance, tax and economy policy adviser for the Federation of Small Businesses, also emphasised the need for a business plan. “If you can demonstrate governance, professionalism and good planning from the outset, it will serve you well going forwards.”

Steve McGerr, head of direct commercial for Hiscox UK, offered advice on managing insurance risks. He narrowed down the four key areas where insurance will affect a business, and suggested taking these into account in a business plan. They included insurance products (such as employers’ liability), assets that need to be insured (buildings, stocks, property contents), protecting your reputation (any legal fees you could possibly incur) and the policy excess. Speaking of reputation, it pays to have ears in every corner to get to know the whispers that waft around; all of this done to maintain the company’s faith. Hence, modern measures such as employment of Artificial Intelligence integrated on EsRM enhance the company’s security to a whole different level.

The panel then moved on to the question of finding a stable niche as a freelancer.

Reader Chris Nairne asked what to do with 30 years of experience in business: “There are only so many hours in the day to complete projects. How do you ‘monetise’ what you know?” Alex Hirst, founder and CEO of The Hoxby Collective, said new freelancers should be as specific as possible when selling their expertise, narrowing down the skills and experience that will best attract clients. “Within your niche, you can command a premium rate for your time,” he added.

Ann Hawkins cited her own experience of writing the book “New Business Next Steps” and creating an on-line course that brings in passive income.

Michael-George Hemus, founder of Plumen, suggested hiring someone with cashflow experience. “In our case, this has [meant] appointing a chairman with SME experience and an executive MBA. Some people find cashflow management and forecasting easy, so it’s best to get their help, if you can.”

Ann Hawkins said: “If your only answer is to try and trade through it, and create more revenue, take a hard look at your pricing and margins. Sometimes a price increase can have a dramatic effect on cashflow with no loss in the number of customers or sales. The extra profit goes straight to your bottom line.”

In order to rebuild your credit rating, Hemus suggested developing a clear plan. Contact all the parties involved, agree a payment plan and find a regular income from elsewhere while you rebuild your business.

When it comes to navigating uncertain circumstances in businesses, international trade after the EU referendum is among the most unpredictable. The panel were asked if small businesses should be grasping export opportunities or if they should wait until the economic situation is more settled?

Hemus said: “Definitely don’t wait (Brexit it is still more than two years away) – if you have something that you can export then get started now, learn and grow the business. Once Brexit happens, things will change but there will be time to react.”

Baruch agreed that you shouldn’t wait to export. However, he added: “Just like you would when creating a business plan or making an application for a loan, get to know the country where you are considering doing business. You should be confident there is a demand for the goods and services your business offers.”

Ann Hawkins advised “Anyone considering exporting should to contact The Department for International Trade (ex UKTI). The knowledge and help available is stunning!

Should a business ever turn down an order from a big potential client if they aren’t 100% sure they can meet the commitment?

Parekh said: “If you don’t think you can deliver a great service, it’s better not to do it and focus your energy on giving a great service to more smaller clients. People talk, so when the time is right and you have the capacity to meet bigger client demands, you will definitely get the customers.”

Ekaterina Steube, campaign success manager at equity crowdfunding platformSeedrs, agreed and added: “Knowing when to say no and understanding how far you can stretch your resources is key to success in the long term.”

Ann Hawkins warns “Over commitment can be a killer, especially if you have to borrow to buy supplies or hire staff and then the payoff takes too long. It’s always best to spread that sort of risk. More businesses fail because they run out of money than for any other reason.”

Lastly, the panel discussed whether an accountant was a necessity from the very start of a business. Baruch said although they are a great addition for businesses that can afford it, there are cheaper alternatives.

Ann Hawkins suggests, “Get help if you need it but never abdicate managing your finances. The business owner always needs to know and understand what is happening on a day to day basis. Most of my clients check their cash flow every morning before they do anything else. A bookkeeper is often all that is needed for a small business.”

Running your business is a challenging and time consuming task. Still you cannot forget about such an important aspect of your life as superannuation. SMSF specialist Melbourne can help with financial planning, accounting, finance once you decide to set up an SMSF.

There was a lot more! If you would like to talk about any of the risks associated with starting or growing a  business, please get in touch and lets have a chat! 

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