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Five things you need to know to successfully scale up your business
Whether you're already running a business or just sketching out your blueprint, how you scale up your venture is probably on your mind.
The idea of building a company valued in the multi-millions or even billions fuel the dreams of many entrepreneurs. Starting a business is just the beginning, however – how do you keep those big dreams growing and turn them into reality?
Here are five essential tips to help you scale your business.
Get Your Finances in Order
First and foremost, ensure you have a clear understanding of your cash flow.
As a lawyer, I’ve seen a lot of businesses struggle or die due to poor cash flow management. It’s such a shame to see promising ventures stall simply due to not having a grip on the numbers or when a company ends up in administration and bought by a rival business because it had a really solid business, but just ran out of cash. When it comes to scaling up your business, prioritising your financial management is therefore crucial.
I strongly advise conducting a monthly review of your profit and loss (P&L) statement alongside monitoring your cash flow. Make sure that your account for factors like accruals and prepayments in addition to your available cash reserves. This comprehensive approach will give you a clear understanding of your financial health.
A reliable bookkeeper is indispensable for financial stability. But choose wisely, as expertise varies. Why not get your external professionals (accountants) to carry out an assessment now and then to ensure your internal resource is accurate and reliable? This will set the stage for informed decision-making and sustained growth.
Remember, staying on top of your financials is key to charting a successful course for your business. If you have a clear understanding of your current position, you'll have a clearer vision of where you're headed and this will inevitably help you raise finance. Conversely, if you're in the dark about your numbers, you'll find yourself at a disadvantage from the start.
Dream Big: Scaling Up Your Ambitions
British people may struggle with this one, as we tend to be self-deprecating and take a cautious approach to potential outcomes. It’s definitely important to weigh up the pros and cons of any decision. But as a startup, it’s equally important to have big ambitions.
Embracing a mindset of thinking big allows you to demonstrate your aspirations and your potential to investors. Investors are drawn to businesses with standout selling points and a clear, profitable, vision. Afterall, investors are investing to make money themselves. If the return looks attractive you are more likely to entice them to put money into your business.
Be bold and be brave. Challenge yourself to set ambitious objectives that push the boundaries of what's possible. While going after quick wins might be tempting, make sure to define your grand ambition clearly and embed your goals into your business plan.
Sharing your aspirations openly not only boosts confidence, but also attracts the support you need to raise money and other strategic growth opportunities.
Funding Your Growth: Unlocking Capital Opportunities
To scale your business, the next step is often to attract investment (the rocket fuel to boost your trip to the stars). This will normally either be angel investment - or depending on your situation - it might well be venture capital (VC). When dealing with VCs, it is essential to be a little sceptical and conduct thorough due diligence on their track record and reputation. If a deal sounds too good to be true, it probably is. Remember, a VC exists purely to invest in things - if you have a good business or product, they are likely to want to invest in you as much as you want their money, so don’t feel you are going cap in hand to them with no negotiating power.
Take the time to meet with previous clients and founders who have worked with them, as their experiences can provide valuable insights. It's not uncommon for entrepreneurs to initially view VCs favourably, only to later regret the decision. (Imagine the initial meetings with them are very much like a courtship, but once they invest, you are married, and a divorce can be quite hard to achieve.) Therefore, it's crucial to ensure alignment in long-term goals and values to avoid potential conflicts down the road.
Moreover, be realistic when valuing your business. When you undervalue your business, you might miss out on attracting the right investors. Think of it like selling a house – if you set the price too low, you might not attract serious buyers. Don't be afraid to aim high and engage in discussions to negotiate a fair valuation that reflects the true worth of your business. VCs won’t normally be put off by a high valuation and will likely just argue you down a bit, but they will never argue you up!
To attract investment in a tax-efficient manner, consider capitalising on schemes like the Enterprise Investment Scheme (EIS). With EIS, individuals can invest up to a million pounds annually, or even more for knowledge-intensive businesses, with a total cap of 12 million pounds. Investors receive 30% of what they have invested off their income tax in the year they invest and/or the year before, making it an appealing option.
Furthermore, if they hold their shares for at least three years, they are exempt from capital gains tax when selling them. This incentivises individual angel investors to support businesses, aiming for high returns without the burden of capital gains tax. This could make a win-win deal. Every angel investor secretly hopes the start-up they are investing in will be a unicorn and they will make millions with no tax to pay.
However, it's crucial to navigate the EIS regulations accurately to ensure compliance and maximise funding opportunities. Because the scheme is so generous to investors, the rules are proportionately labyrinthine and if you get them wrong and investors don’t get their tax breaks, they tend to get a little mad. Venture Capital Trusts (VCTs) also offer similar tax breaks for investors, but likewise, you need to make sure you get the paperwork right.
Team Building: Gathering Your Dream Squad
Ensure your management team are both knowledgeable and effective communicators. They play a crucial role in providing professional support and motivating employees as your business scales.
Offering incentives and motivations, such as share option schemes, can be effective in fostering productivity and dedication from your team. Remember, you don't have to offer large percentages of ownership to incentivise employees. Even a small stake in the business can inspire greater effort and contribute to overall success. Plus, by giving early employees in the business additional incentives such as options, you may be able to hire talent that you otherwise would not be able to afford.
Knowledge sharing: Fostering Your Networks
At first glance, sharing information about your business may seem counterintuitive - especially when many entrepreneurs prefer to keep their operations under wraps.
However, there are benefits of sharing insights with others in your industry who aren't direct competitors. By exchanging information with fellow entrepreneurs at similar stages in their own business journeys, you gain practical insights and valuable knowledge. This collaborative approach not only enhances your understanding of the sector, but also empowers you to make more informed business decisions.
Ultimately, information sharing fosters stronger networks and provides access to invaluable informal advice, meaning that you get a comprehensive understanding of your industry landscape. Plus, running an early-stage business can be lonely and, having contacts going through the same thing as you that you can talk to, can give you much needed support and allow you to maintain good mental health.
Mastering the basics of financial management, daring to dream big, unlocking funding opportunities, assembling your dream team, and embracing knowledge sharing are crucial steps for your startup's journey to scale.
Starting from scratch is not always easy. It can feel like a rollercoaster ride, with twists and turns along the way. But don’t worry, you're not alone.
If you want to learn from others' journeys so far don’t forget to tune in to our podcast, 'Business Without Bullshit'. Also, don’t hesitate to get in touch if you need advice or even if you are not sure if you do. We are always happy to offer a free initial consultation to help you get the support that you need or point you in the right direction.