Small firms urged to be wary over post-disaster growth
Michael Fingland, managing director of business turnaround specialist firm Vantage Performance, says the multibillion dollar task of rebuilding Queensland and Victoria in the wake of the floods is compromising the viability of many businesses.
Fingland says while the initial focus has been on struggling businesses, many companies are now under pressure as a result of increased demand.
“On average, one third of our clients have actually been growing at 30% to 50% year-on-year and they come to us because they’re growing too quickly for their finance facilities, management structure, and systems and controls,” Fingland says.
“These are firms that are making a profit on paper but outgrow their finance facilities and run out of cash,” Fingland says.
“They have committed to large contracts that they find they can’t fulfil because of a lack of cash flow… Essentially they’ve got into strife by being almost too successful.”
Fingland says while businesses in mining, civil contracting and labour hire are at the most risk, there is a flow-on effect to businesses in other industries who supply to these companies, including transport companies and hardware retailers.
He says in addition to cashflow issues, businesses commonly outgrow their staff and management capabilities, which results in poor customer service and unfulfilled orders.
“If you are trying to grow your business, grow everything in tandem. This includes the financial facilities, internal systems and controls, and staff capabilities,” he says.
Fingland says small businesses need to learn to say no to more work if they don’t have the capacity to take it on, stating it is quite common for businesses to do so in the current economic climate.
He says as demand starts to heat up, small businesses often lose sight of their original goals and are solely focused on making as much money as possible, often to the detriment of their business.
“They become a victim of their own success – they create a point of difference and customers naturally tap into that and want more of you,” he says.
“But you need to ask yourself, what I am in this business for? Is it to grow the biggest, best transport company in the world or is it to work no more than 40 hours a week while offering a great service? You need to strike that balance.”
“Use this as a time to reflect on the business and the reasons why you started it. Ask yourself: will ramping up help me get to where I want to be?”