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What Do High Growth Businesses Do Differently?

Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impa...

Tuesday 6 September 2016

Tax is Going Digital - Mr Accountant, What Does This Mean for Your Business?

In 2018, whether we like it or not, and for most accountants it’s not; tax is going digital.

Why should I be bothered you ask, its 18 months away. In simple terms because it will fundamentally change the way you do business with your clients. Post 2018 HMRC want small businesses (10 people or less), that’s by the way 95% of all businesses in the UK, to report their tax quarterly. That means as an accountant you need to be in a position to submit a full P and L every quarter. Plus there may well be a requirement to submit a full and adjusted set of accounts for the year end. So potentially you’ll need to submit 5 sets of accounts for every current customer you have from sole proprietors up. Put another way if you currently have 200 customers now, as of April 2018 you’ll have the equivalent of 1000.

Its pretty obvious that you and indeed the whole accounting industry won’t be able to cope with such change without a substantial change to the way you process accounts and manage customer relations.

The caricature of the archetypal accountant small accountant is someone who’s great at detail but not good at dealing with customers, and who pump out compliance work with minimal customer contact. Not anymore. You are going to have to CHANGE.

At our recent Kent Accountants Club we discussed the ramifications of Tax Going Digital, and it soon became apparent that most have not even considered the potential ramifications of this train coming down the tracks. This might be of course because many are still looking at the final phase of Auto Enrolment but most likely it just seems so far away. Our Group has nevertheless agreed to look into the ramifications in more detail over the next 6 months or so to help our members find the best solution for their particular business. (We still have a couple place available in our group for any interested accountants. If you want to know more contact me laurence@exigent-uk.com for more details.)

So what are you going to do about it?

From a customer perspective, I have 3 questions.

When and how will it affect me?
What if anything do you want me to do differently?
What’s it going to cost?

To answer these questions you need a clear strategy and approach.

It could be a radical we can’t support all our clients we simply won’t have the resources so let's pick our best 50%, work with them because they’ll be more prepared to pay our increased fees and we’ll ditch the rest.

or alternatively, we need to change the way we process to support all our clients and they’ll just have to pay what it costs.

The key question is: What IS IT going to cost? And when will you be able to tell me your customer?

The trouble is you won’t be able to answer that question until you’ve understood what your strategy and what that means for your business. What makes it worse, if indeed anything can is that customers aren’t going to be falling over themselves to help you sort this out. Their response is going to be as it is for auto-enrolment, which is: can I ignore it, I don’t want to do it, can't I leave it all up to you as my accountant?

This is why 18 months isn’t long. You’ll need a good 3 months of research and discussion to figure out how best to cope with this change, your strategy. At that point you’ll need to get into detail and in particular what you’re going to need your clients to do differently you help you. The most obvious being that receipts in a bag just won’t work. Information is going to have to be supplied digitally. So everyone, and I mean everyone, is going to have to use an accounts/bookkeeping package like Xero or Quickbooks.  

The next question is how does that get implemented?

What about those who want to use something odd or quirky. Given the time constraints of posting 5 weeks after quarter end can you afford to support these other systems?

Who’s going to answer customer queries as it sure isn’t going to be the supplier?

How are you going to get customers up to speed?

How are you going to move from a free system like say VT to a paid system?

How are you going to support your customers if large tranches of your customer base convert over to digital reporting at the same time?

What is your effort and timescale needs to convert each customer to Digital reporting?

How much reviewing are you going to put into each set of accounts?

How much time will this take? As a customer, I want to be paying as little tax as possible for each quarter. I don’t want to overpay tax and get a rebate sometime after my notional year end.

How will you give clients an assessment of the cash-flow implications of reporting and paying tax quarterly?

What’s your sanction if a client won’t conform?

Will you fire awkward clients or will you keep them but double your price?

As you can see there is an awful lot to consider and you only have 18 months and we’ve hardly scratched the surface on process issues or indeed pricing. You can’t rely on others to help you because mostly they’re waiting to see what you do.

In all of this, there is a huge opportunity to gain market share, profitability and peace of mind, but only if you start considering the implications now.

Exigent Consulting provides specialist services for Managing High Growth, and Coaching and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 

Tax is Going Digital - Mr Accountant, What Does This Mean for Your Business?

In 2018, whether we like it or not, and for most accountants it’s not; tax is going digital.

Why should I be bothered you ask, its 18 months away. In simple terms because it will fundamentally change the way you do business with your clients. Post 2018 HMRC want small businesses (10 people or less), that’s by the way 95% of all businesses in the UK, to report their tax quarterly. That means as an accountant you need to be in a position to submit a full P and L every quarter. Plus there may well be a requirement to submit a full and adjusted set of accounts for the year end. So potentially you’ll need to submit 5 sets of accounts for every current customer you have from sole proprietors up. Put another way if you currently have 200 customers now, as of April 2018 you’ll have the equivalent of 1000.

Its pretty obvious that you and indeed the whole accounting industry won’t be able to cope with such change without a substantial change to the way you process accounts and manage customer relations.

The caricature of the archetypal accountant small accountant is someone who’s great at detail but not good at dealing with customers, and who pump out compliance work with minimal customer contact. Not anymore. You are going to have to CHANGE.

At our recent Kent Accountants Club we discussed the ramifications of Tax Going Digital, and it soon became apparent that most have not even considered the potential ramifications of this train coming down the tracks. This might be of course because many are still looking at the final phase of Auto Enrolment but most likely it just seems so far away. Our Group has nevertheless agreed to look into the ramifications in more detail over the next 6 months or so to help our members find the best solution for their particular business. (We still have a couple place available in our group for any interested accountants. If you want to know more contact me laurence@exigent-uk.com for more details.)

So what are you going to do about it?

From a customer perspective, I have 3 questions.

When and how will it affect me?
What if anything do you want me to do differently?
What’s it going to cost?

To answer these questions you need a clear strategy and approach.

It could be a radical we can’t support all our clients we simply won’t have the resources so let's pick our best 50%, work with them because they’ll be more prepared to pay our increased fees and we’ll ditch the rest.

or alternatively, we need to change the way we process to support all our clients and they’ll just have to pay what it costs.

The key question is: What IS IT going to cost? And when will you be able to tell me your customer?

The trouble is you won’t be able to answer that question until you’ve understood what your strategy and what that means for your business. What makes it worse, if indeed anything can is that customers aren’t going to be falling over themselves to help you sort this out. Their response is going to be as it is for auto-enrolment, which is: can I ignore it, I don’t want to do it, can't I leave it all up to you as my accountant?

This is why 18 months isn’t long. You’ll need a good 3 months of research and discussion to figure out how best to cope with this change, your strategy. At that point you’ll need to get into detail and in particular what you’re going to need your clients to do differently you help you. The most obvious being that receipts in a bag just won’t work. Information is going to have to be supplied digitally. So everyone, and I mean everyone, is going to have to use an accounts/bookkeeping package like Xero or Quickbooks.  

The next question is how does that get implemented?

What about those who want to use something odd or quirky. Given the time constraints of posting 5 weeks after quarter end can you afford to support these other systems?

Who’s going to answer customer queries as it sure isn’t going to be the supplier?

How are you going to get customers up to speed?

How are you going to move from a free system like say VT to a paid system?

How are you going to support your customers if large tranches of your customer base convert over to digital reporting at the same time?

What is your effort and timescale needs to convert each customer to Digital reporting?

How much reviewing are you going to put into each set of accounts?

How much time will this take? As a customer, I want to be paying as little tax as possible for each quarter. I don’t want to overpay tax and get a rebate sometime after my notional year end.

How will you give clients an assessment of the cash-flow implications of reporting and paying tax quarterly?

What’s your sanction if a client won’t conform?

Will you fire awkward clients or will you keep them but double your price?

As you can see there is an awful lot to consider and you only have 18 months and we’ve hardly scratched the surface on process issues or indeed pricing. You can’t rely on others to help you because mostly they’re waiting to see what you do.

In all of this, there is a huge opportunity to gain market share, profitability and peace of mind, but only if you start considering the implications now.

Exigent Consulting provides specialist services for Managing High Growth, and Coaching and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 

Tuesday 23 August 2016

Four ways to get out of the detail and concentrate on driving growth

One of the biggest issues for a high-growth business owner is learning how to relinquish day-to-day tasks
 so that they can take a more managerial and leadership role. Many businesses live right on the edge of capability and disruption from the slightest unforeseen issues can cause the leadership to fall back into the business detail.

Why?

There are a number of reasons why this happens, the two most common that I come across are:

A failure by the leadership team to understand what their role is. The result being they get involved in everything
Not understanding the difference between a cost and an investment. High-growth companies are profit conscious, but sustainable growth requires proper investment
There are, however, some simple techniques leaders can use to help them avoid these growth limiting issues.

Get out of the detail and concentrate on driving growth1. Fit for purpose, not perfect

When we start a business we do everything, from washing up to board meetings. As the business grows then we learn that we can’t do everything and so we have to give tasks to other people; we delegate.

This in itself can cause a problem. Why? Because as business owners we’re typically overqualified to do the jobs we’re delegating, which often leads us to have an unrealistic expectation on how certain activities should be performed.

Let me give you an example. A director for a multimillion-pound removal business insisted that he should produce the route planning for his drivers. One day I asked him why he didn’t delegate the task as it was a job that in most businesses would be done by a lower level person. In any case, most of the work was shouldered by the route planning software. His reason was that the people he delegated this job to didn’t do it as well as him. So he saddled himself with a completely unnecessary task for two hours every day.

I went on to ask how much he would expect to pay someone to do the job. ”No more than £25,000,” he said. “And, you pay yourself?” I asked. His reply was “over £100,000 Laurence, and you know that".

“Yes I do,” I said. “So, why are you paying yourself £100,000 to do a job that you’d only pay £25,000 for someone else to do.”

At this point, the penny dropped and he got one of his managers to take over that responsibility. Many times the people who take over a job from you won’t do it as well as you, but they will do it well enough for you not to have to take it back.

2. Question what you are doing

Michael Gerber talks about “getting out of the box”. What he means is, you can’t operate at multiple levels in an organisation at the same time and be effective. For example, you shouldn’t be the sales person, sales manager and sales director. You need to divest yourself of the sales person role before you can properly accept the sales manager role.

My route for achieving this often complicated goal is to ask yourself: “Would I give this task I’m doing to a director of this company?”

From the answers build two lists one under ‘Yes’ and the other under ‘No’.  Next, take the ‘No’ list and start to group tasks into common areas (it’s much easier to do this from a list rather than off the cuff during a busy working day).

In a growing company these tasks won’t add up to a whole person’s job, nevertheless, you may well be able to give these connected tasks to others in your business freeing up valuable time for you to spend on more important activities. Rinse and repeat on a regular basis as your business continues to grow.

3. Give yourself a job description

Write down what your role entails and stick to it. This will prevent you from accumulating lots of other tasks which lower your productivity and eat away at your valuable time.

Review it every six months or so and make any changes necessary, trying always to focus more on strategic tasks.

4. See people as an investment!

Many high-growth businesses are under-resourced. This is often because owners see new hires as a cost. Much of this is because we don’t look at people as an investment in the same way we would machinery or another physical asset.

The issue here is to understand that they are an investment and they can deliver value considerably greater than their salaries. Their greatest benefit is that they give those in the rest of the business time, a commodity that is in desperately short supply in most high-growth businesses.

Here are two examples that illustrate what I mean. A high-growth construction business had been plagued by slow payments, but the owner refused to spend £25,000 on a credit control person because he didn’t want to add to his overheads. When he finally relented, the credit controller reduced outstanding debts by almost £400,000 in their first four weeks, eliminating the company’s cash flow issues.

The sole director of a high-growth services business was being overwhelmed with demands on his time resulting in missed meetings and half completed jobs. After a lot of pressing, he reluctantly agreed to hire a personal assistant. His assistant’s organisational skills transformed his ability to perform by managing demands on his time and controlling his diary. He no longer misses meetings or deadlines.

So, don’t be too afraid to try. Sometimes even the best thought out investments fail, but that doesn’t mean you should stop investing. I do realise the difficulty in saying to someone that they haven’t worked out for you, but hiring people is never perfect and the risk of failure isn’t a good enough reason not to hire at all.

This post was originally published in Businesszone.co.uk in July 2016.


Tuesday 21 June 2016

What Mike Ashley Has Taught us About High Growth Businesses

Introduction

Successfully managing high growth is hard. We got an insight of just how hard, with recent revelations about Sports Direct from its owner Mike Ashley. Although the sceptical amongst us might consider some of his statements as a bit of window dressing. There is no doubt that recent events have brought into sharp focus just what can happen in a business when High Growth becomes “too much growth”.

Successful High Growth is not merely about growing your customers, but rather being able to deliver the sales that you have won. For many tech companies, it's relatively easy, it simply requires more hardware to support scale. For a more traditional business, things are a bit more complicated. In Sports Directs case it’s about mobilising the supply chain so that when someone buys online, the product can be delivered, which assumes it’s in stock, which means it’s been ordered from the manufacturer, typically in the far east, in time to meet demand. It also assumes that there are sufficient people in the right place to make this happen.

Culture

You’ll recall a number of statements by Ashley to the MP’s select committee about his shock over some of the working practices and the “Culture of Fear”. This rather indicates that the Culture in Sports Direct had gone bad. This is probably because the business had grown so fast that new employees did not buy into the existing company culture and allowing an aberrant form of the Culture to grow. 

This happens because the people who perpetuate and enforce cultural norms are the lowest level of management. It is they who come face to face with new employees and will have to explain why things are done the way they are. It also requires support from the company leadership to underline the importance of the company’s cultural norms.  When these “custodians of the culture” become overwhelmed with new employees the existing culture breaks down. What rises in its place is a culture driven not by company values, but rather by the force of individual personality. 

How easily this happened depends on the strength of the company’s culture in the first place. If it’s not very strong, then you’re pushing at an open door. 

Process

Processes like culture can also break down under the strains of growth. In fact, successful businesses are constantly reviewing processes to maximise performance.

It seems that this idea has been lost on Sports Direct and their processes were not fit for purpose. To be fair some of this is simply a result of just how successful Sports Direct can be. You might recall Ashley saying that on some sunny days, demand can increase by 25%. That puts tremendous pressure on the business to perform. The problem for the company is that it has not separated human processes from fulfilment processes, it has simply failed to recognise that people perform better in a positive environment, bullying and intimidation only work up to a point, but in the longer term people just do enough to get by; meaning that productivity remains stubbornly low. You’ve got to ask yourself how productive some can be when they reach full term of their pregnancy.

What seems clear is that insufficient time has been spent on making these processes perform. 

Leadership


Mike Ashley talked about the business outgrowing him. The more sceptical amongst you might see this as a way of mitigating his failure to lead. The leadership of Sports Direct have been simply unable to get back control of the business. The failures highlighted in their distribution warehouse demonstrate that the Leadership team we unaware of what was going. Now, whilst I accept that in a big organisation, problems like this can arise, what is clear is that this has been a long-term issue and signals a clear failure in leadership. So Mike Ashley might be speaking the truth when he says the business has outgrown him. 

Conclusions

What are the key lessons we can draw from this sorry state of affairs? For a start, never underestimate the negative effect that bad culture has on your business performance. The stronger your Culture, then the faster you can grow without an unacceptable dilution of your cultural values.  Culture starts from the top everyone takes their cue from those more senior to them. If you as a Leadership team don’t overtly support and maintain your cultural values then don’t expect your staff to act any differently.

If you are building your business; growth will start to undermine your processes. Making time to keep them as efficient as possible will put less stress on your people and enable you to continue to growth efficiently and profitably.

Understand how susceptible your business is to the pressures of growth. The more you are people dependent in delivering increased sales the more challenging the high growth environment becomes.
Managing a growing business is hard. The entrepreneurial skills you need to create a high growth start-up, are completely different to the management skills you need to run a large corporation. You can see this by looking at just how few individuals manage to achieve this transition. 

It’s no failure to recognise that you need to bring in business management expertise to take you forward. Sadly, it has needed some public humiliation for Mike Ashley to recognise this fact, and it’s not something you want to have to go through to reach the same conclusion. 

Tuesday 26 April 2016

Monday 25 April 2016

What Do High Growth Businesses Do Differently?

What Do High Growth Business Do Differently?Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impacts our economy, has become widely recognised.  Firstly, let’s just clarify what we mean by a High Growth Business. The generally accepted definition is a business that is growing at a minimum of 20% per annum with a turnover of at least £500,000. 

The now defunct, Government supported GrowthAccelerator service, recognised the importance of this group and provided financial support to stimulate further growth through business advice and leadership & management training. 

Despite its importance, there is very little empirical evidence on what businesses do that is likely to make them a candidate for high growth and how they maintain a high growth state.

However, a report published in the USA by Hinge Marketing as recently as February this year, at last, gives us some empirical insight into the workings of these businesses. It looks only at service businesses, but the results are from a sample of over 500 firms.

I don’t propose to give a blow by blow account of the report but rather pick out some of the more interesting findings. There is a link at the end of this article for those who want to read the report in full detail.

One of the most surprising findings was that High Growth Businesses were 45% more profitable than their no growth counterparts. Put another way, High Growth Businesses in this sample had an average profitability of 19.9% compared to 13.7% for No Growth Businesses. 

This finding seems to defy gravity as conventional thinking tends to suggest that in the high growth phase, businesses substitute top line growth (turnover) for bottom line growth (profit). The report itself doesn’t analyse why but having thought about it a bit, I’ve a couple of suggestions. 

Firstly, High Growth Businesses tend to be better run. In order to sustain high growth, the leadership team needs to have a detailed understanding of how different aspects of the business interact. That tends to mean that they are more efficient as a business including delivery and managing creditors. On the other hand, I know from personal experience that many High Growth Businesses can also be rather chaotically run and certainly aren’t then efficient.

Secondly, could be the adoption of technology. By employing technology appropriately, you can substitute new recruits for capital investment. This means that you can reduce the level of recruitment for any given level of growth. In my experience it is the need to recruit, and recruit heavily, that impacts profitability because it often takes several months for new starters to add value to the business. 

I don’t have a clear answer as yet but do hope it’s something that is followed up in a later survey.

The survey also looked at how firms differentiated themselves: this also generated some startling differences.

In response to the question “What are your five most favoured differentiators?”

High Growth Businesses listed;
Our marketing/ business development approach
Our culture
Our business model
Our use of technology
The quality of our people

No Growth Businesses listed;
Our commitment to results
Where we are located
Awards we’ve received
Our reputation
The specialised services we offer

What is blindingly obvious is that these two groups focus on completely different things and if you wish to embrace high growth there may need to be some significant shifts in your way of thinking.

Let’s now turn our attention to how the two groups approach marketing. The survey uses the idea of Total Marketing Effort, which represents an approximation of the sum of explicit marketing costs and implicit costs such as time or diversion of expertise. The rationale behind this is that no marketing is free because marketing time often competes with billable time.

In respect of total marketing effort, High Growth Businesses investment are slightly less than No Growth Businesses at 55.7% to 58.8% respectively. This may also be somewhat of a surprise as I suspect many would expect High Growth Businesses to be spending a lot more on Marketing. 

Logically then in order for this to be true, High Growth Businesses must have much more effective marketing. I think this goes back to a point I raised earlier that because they have a much better understanding of their business they get more “bang for their buck” out of each pound of investment than their No Growth counterparts.

What is more, High Growth Businesses invest their spend very differently. High Growth Businesses spend much more on digital marketing. Comparing these two groups again, High Growth Businesses only spend 40% of their marketing effort on traditional marketing compared to over 50% by No Growth Businesses. By contrast, High Growth Businesses are much more heavily invested in digital marketing, where they spend 60% of their effort. 

Also, as you might expect because they are more rigorous in measure relevant metrics than traditional businesses. Typically High Growth Businesses monitor at least 4 separate metrics where No Growth Businesses monitor just over 3. This might be for two reasons, firstly, digital marketing is easier to track, therefore building reliable metrics is simpler. Secondly, though perhaps a more circular argument, is that they run their business more effectively which means they’d rather spend their marketing investment where they can monitor its performance which would bias them towards digital marketing.

So what are the takeaways from this survey?

If you want to have a successful High Growth Business, then you need to take a holistic approach and look at how your business can best deliver what you are selling. The idea that culture and people can be a compelling differentiator at the strategic level might be a surprise. However, if you look at many of the highly successful businesses of the recent past, these two components have been key attributes to their success.

Marketing isn’t just about spend, it’s also about finding the right techniques to use. Currently digital marking is delivering a better ROI, however, that might just be because traditional marketing is harder to measure, not that it’s less effective.

We are a specialist High Growth consultancy. Using our Seven Steps programme we can help you set your business for long term High Growth. For further information please go here 

This article was originally published on BusinessZone.co.uk

For a full copy of this survey go to Hinge Marketing