Pathways to growth

In business, there is no one right way to achieve growth. However, before expanding, it’s important you fully understand your company, because while growth can lead to bigger profits, it can also lead to collapse

Every business starts out small and requires a lot of work before you can start make a living from it. After a while, you may want to expand and this could include moving into another sector. Growth is often a key target, because the perception is big profits equals big business. Below are some methods that could help you take your business to the next level:

Organic Growth

This happens naturally via an increased volume of work and higher turnover. It can happen quickly, or over time and is largely dependent on the effort you put into your business, and how targeted that effort is.

You need to take care to ensure that your resources grow at the same rate as the rest of the business, otherwise the quality of your work will suffer and your efforts will be wasted.

Acquisitions

You can achieve growth quickly using this method, as you immediately benefit from the additional size and ability of the acquired business. This approach simply involves buying another business:

• If you’re trying to grow in your sector, target a competitor, such as another building business.
• If the goal is to expand into previously untapped markets, acquire a complementary business, such as a roofer or bricklayer.

However, this method carries risks. It’s important to ensure you perform proper due diligence and consultation before any acquisitions. There are numerous horror stories where the financial performance of the acquired business has been inflated, or the processes used by each business did not complement each other.

The purchase of a poorly suited business can often drag down a successful parent company. If you’re buying a business that is reputable and well positioned, you should be able to merge it into your operations as a stand-alone company without much interference. Conversely, an underachieving business will require greater capital input.

 

“You need to take care to ensure that your resources grow at the same rate as the rest of the business, otherwise the quality of your work will suffer and your efforts will be wasted

 

Joint venture

This is usually limited to individual projects and is an effective way to win contracts that you otherwise couldn’t. Big players in the construction market commonly use this method, so that they can tap into other business areas while spreading their risk.

It’s important to ensure that the parties you’re looking to work with have similar views and are willing to work cohesively to ensure the job is finished on time and on budget.

A good example of this would be if you were looking to tackle a subdivision project, but wanted the investment and advice of a strong partner with expertise in another area of the construction industry.

Diversification

Diversification can either be vertical (moving up or down your supply chain), or horizontal (branching out into
a different sector, such as plumbing).

It’s a good way to spread risk and/or protect the business from supplier demands or other contractors.

By utilising vertical diversification, you would be buying either a supplier of goods or a distributor of your own products. By doing so, you would gain greater control of the supply of goods and services to your company.

Horizontal diversification would be purchasing a complementary business to tie in with your own, so that you
can offer more services to customers in your industry.

Other considerations

Coupled with these methods, you should also keep the following in mind:

• When to get off the tools.
• Timing growth according to market conditions.

As the business grows, it will require someone working full-time in a managerial role – it’s usually better to do this sooner rather than later.

When it comes to timing, it’s critical to get the growth phase aligned with an upturn in the market you operate in. There’s no point in investing capital in the business or acquiring new projects if work is slow and hard to find.

More information

While the above is a snapshot of what’s important to grow a business, there’s a lot more to understand. With that in mind, Crowe Horwath has teamed up with Minter Ellison Rudd Watts to provide a free comprehensive afternoon training session to cover these areas in more detail and give you and your business the tools it needs in order to achieve success. The sessions begin in late April 2015 and will be running in different locations around the country.
For further information or expressions of interest, please contact us at Auckland@crowehorwath.co.nz.

If you have questions about how to grow your business, please contact Peter van der Heijden at peter.vdh@crowehorwath.co.nz; or your local Crowe Horwath advisor.

For the contact details of your local office, please visit: www.crowehorwath.co.nz/locations or telephone 0800 494 569.