So thanks again for all of you that have been sending in questions via the comments section and through some of my other social media platforms. It is brilliant to hear from everybody and I’m setting myself the task of making sure I answer as many of them as possible.
And here is another cracker this week! Somebody’s asked the question, how can I upscale my business without taking on investors?
I totally get where you’re coming from and it’s a really good question because lots of entrepreneurs really want to grow their business but they don’t want to get into having investors involved. I was like that when I first started out in business.
Now, we’ve seen it on the Den plenty of times. You get an entrepreneur and they come in offering you 5 % of the business for a hundred grand or something, they value their business at two million, and then we work out it’s only worth about 50 grand.
What they are really trying to say is, I want to grow, I would love your advice, I need a bit of cash but I don’t really want you to take a share in my business.
So what’s the answer? You want to grow, but you don’t want external investors in.
Well, you can definitely look to upscale your business without bringing outside investors in, but you’ve got to acknowledge that it’ll take a little bit more time and will definitely require a much more focused approach.
So, let me share with you a few pointers on what I would suggest you might want to look at doing.
Now, the first one is that you really need to maximise your efficiency and your productivity.
What I’m talking about here is streamlining your operations, looking at everything that costs you money. Conduct a thorough review of all of your workflow, your supply chain and your internal systems then identify anything that’s creating bottlenecks in your systems.
Ask yourself if there is anything that’s been under-utilised? Check your broadband provider. Is there a cheaper one? Check your waste collection costs. Can you find a more competitive business insurance? Every penny that you spend should deliver maximum results and every pound you can save is a pound that you haven’t had to borrow.
Look at your technology. Could you invest in AI to save you some money? Would a better accounting system reduce your overall costs or maybe a cloud-based CRM or accounting system will reduce hardware costs and improve your efficiencies.
Nothing is out of bounds, okay? Look at your workforce, is everyone really productive, can any of your staff be cross-trained on more than one function so that they can step in and do holiday cover or provide extra capacity when you’re really busy? You can train staff for new roles so that they progress through the company rather than going through the expensive process of recruiting and induction as these staff know the business already.
Then, check your inventory. It’s not just your own products, but the stuff that you use.
Are you sitting £500 worth of paper and stationary in the cupboard, right? Do you have expensive equipment like laptops, screens or PCs that never get used? And what about virtual inventory like your software licenses, virus protection? You’ve got to make sure that everything you’re paying for is being properly used and you are not carrying excessive surpluses. By being efficient, you’ll maximise your return on investment and liberate extra cash in the business.
This leads me on to the next point, keeping profits in the company.
I know it can be really tempting to take cash out, particularly when things are going well, but the more money you can leave in the business and reinvest, the more opportunities you’ll have to grow without the need for outside investment.
Now again, we’ve seen entrepreneurs come into the Den asking for investment, when really, they probably just need to be cutting back on their lifestyle a little bit and using that money to grow the business rather than funding an expensive lifestyle.
A big part of being able to reinvest profit into the business is also about identifying which parts of your business generate the highest margins, let me walk you through an example.
Imagine that you’re a restaurant. After accounting for wastage, you’ve worked out that your profit margins are 50 % on main course, 60 % on starters, 34 % on desserts and 72 % on wine. It looks like you need to make sure everybody has a cider and a bottle of wine, right?
Now it sounds simple and it kind of is, but it’s amazing how often businesses don’t actually know where the best profits are to be had. And as a consequence, they don’t focus on those areas enough.
Another way to really improve your cash flow and enable inward investment is to try and negotiate better payment terms.
Extend your credit terms with your suppliers and shorten your payment times from customers. It can be as simple as talking to your payment handler about fees and payment terms or as involved as changing banks if you need to. Either way, getting and keeping the money in your bank longer is going to give you more cash to be able to reinvest.
Now another area you should focus on is ways to grow and diversify your customer base.
It can mean exploring new market segments, introducing new products, and to support this, you should research all of these potential markets, talk to prospective customers and look at the competitor activity in those areas.
You might need to reinvest profit in the new marketing campaigns and strategies or changes to your existing processes so that you can handle new customers. For example, maybe it’s developing an online shop or extending your opening hours if you’ve got a physical presence.
All of that requires cash, which is why I started off by having you focus on how to save cash in other areas so that it’s available to invest and one of the biggest assets that you will already have is your existing client base.
You might want more, but for now the focus should also be on leveraging the opportunities that your existing customers present. So encouraging repeat business through loyalty programs, subscription models, creating personalised offers through regular engagement.
Not only are you going to boost sales, but it’ll probably make these people more likely to refer others. Then, have a think about things like partnerships and collaborations with other complimentary businesses to cross promote offerings and develop joint ventures. This can halve your marketing costs and also introduce you to a whole new set of customers.
Now, everything that I’ve talked about underpins incremental expansion, right?
It’s not gonna deliver the big bang expansion that a large cash injection might bring. And I use the word might really deliberately because I’ve spent many millions that companies have tried to spend on trying to grow business without success.
But what this focused approach to organic growth will do is maximise your rate of growth whilst minimising operational risk.
So there you go, some ideas around how to grow your business without the need for outside investment. It’s definitely possible and if it’s done really really well it can be hugely satisfying.
Thanks for watching, hope that’s been useful and have a great week.