The start of a new financial year is usually an opportune time for Chief Financial Officers (CFOs) to plan their growth strategies. With a benign and even positive economic environment forecast for the coming 2018/2019 financial year, it could be a good time to get serious about plans to expand.
According to Trading Economics, in the first quarter of 2018 the Australian economy rose by 3.1%, the fastest growth rate since the second quarter of 2016. This follows an expansion of 2.4% in the last quarter of 2017. The average Australian GDP growth rate is 0.86%.
Against this backdrop, CFOs can have some confidence in the success of strategic plans informed by good business data and may want to stay nimble to take advantage of current market conditions.
1. Acquisitions can add value
Buying another profitable business is a way to immediately add to your revenue stream, says Peter Khalil, Principal of Perris Knightsbridge Chartered Accountants.
“If you are in a position to buy another business, this can be a good chance to acquire skills, new products and knowledge that can help to accelerate the growth of your company," he says.
A successful acquisition needs a well-defined strategy to enable the asset to be properly integrated into the business. Savvy CFOs will often do this using a framework to test how the acquisition might fit into the business from both a financial and cultural perspective. When considering acquisition targets, a good place to start is by building the investment criteria, checking this against the overall strategic goals for the business. From there, you can put together a target acquisition list that includes opportunities for vertical and horizontal integration, as well as potential competitors who may be able to be acquired.
“There's lots of activity in the mid-market and a steady buzz around deals," says Khalil. “If your strategy and investment criteria are suitable, the right acquisition can be a great way to grow a business," he says.
2. Invest in up-to-date technology
The right technology investments, implemented well, can give a business a huge boost. There are currently many opportunities for mid-market businesses to invest in cloud-based tools to solve inefficiencies in the business, enhance customer experiences and reduce costs.
“It is important to build a business case around the technology," says Khalil.
For instance, when investing in a system to better manage your inventory, assess the potential impact the system could have on the business and list desirable attributes. One example could be that the new inventory system needs to improve re-ordering of stock, which would then have flow-on impacts on storage costs, cash flow and profitability. Then, review the range of potential technology solutions available to ensure the solution you choose fits your business needs.
“Above all, ensure the team is prepared to manage the switch to the new technology," he adds.
This involves developing a change management process to move from one system to the next. It's an idea to implement robust project management frameworks around this to help the team understand what has to happen to switch to the new system and their role in the change.
“Make sure you cleanly move to the new technology," advises Khalil. “There can be a tendency to hold onto the legacy system. But this will only increase inefficiencies. So make sure you properly decommission the old system to get the most benefit from the new one."
3. Use cash wisely
Businesses with substantial cash reserves are in a strong position to invest for growth, and CFOs can use the money to invest in marketing, new machinery and new processes.
But cash reserves can also reduce the business tax burden more rapidly. Pre-paying interest can be an effective way to make the most of excess cash, while also triggering a tax benefit because the payment could potentially be claimed in the year it is made, helping to reduce tax.
“You can also improve your balance sheet by paying down some debt, by engaging in share buy-backs or by paying dividends to investors, if that's the right choice for the business," Khalil advises.
4. Research export markets
Australia makes up a small percentage of the global economy, so a business which plans to expand can find that entering export markets can open up additional revenue opportunities.
“Exporting requires a planned approach, so do thorough research into the local market to ensure your product is suitable for it. Also ensure you understand who your potential competitors are," Khalil explains.
Following the exercise of developing the business growth strategy, CFOs can gain excellent information and assistance by visiting the market and drawing on the services of trade agencies such as the Federal government's agency, Austrade.
“Make sure you consider risks such as the impact of currency fluctuations on your operations and the potential for hedging instruments to reduce your risks," Khalil adds.
Another handy tip is to ensure internal systems - including distribution capabilities - can incorporate overseas sales.
Says Khalil: “There's a lot to consider when exporting, so make sure you work through each step to ensure it's a profitable part of your business."
5. Gear up for growth
A growth strategy relies on a robust underlying business. This means access to healthy cash flow, and the right skills and people in the business.
“Retaining great people in this environment is critical because there is war for talent. Offering your staff the opportunity to work flexibly is one way to attract people who want to work for you," Khalil says.
Getting the right people in the right place can often be a product of good processes.
Businesses which set clear KPIs (so people understand their responsibilities) and capture this data in their ERP system (so they can use it to make better business decisions) usually manage to resolve issues quickly and effectively.
Implementing this kind of strategy in today's business world often relies on an investment in a cloud-based system that produces data from that can be used to help reduce operating costs.
Ultimately, an effective growth strategy is not all about having an external focus.
When the time is right, a savvy CFO can use growth to position the right people in the right roles, using the most up-to-date tools and technology available to support them.
After making the right decisions on growth - CFOs might help drive the business forward now and into the future.
- Invest in the right cloud-based tools to support the business's growth strategy and give it the data it needs to make smart financial decisions.
- Consider exploring export opportunities to open the business up to new markets outside Australia's limited economy.
- Use the excess cash in the business wisely to invest in marketing and processes, and to improve the balance sheet over time.