Many accountants are already adopting an advisory or mentoring role, but within two years it will be a core offering from us all, says Mike Foster.
Based on a meeting with a group of IAB members who had recently started their own practice or were now looking to grow, there are a number of common pitfalls that can lead to business failure and the barriers we or our clients face when looking to grow.
The majority of clients are looking to avoid these initial pitfalls or grow their business, so this is an ideal opportunity for us to add value in an advisory capacity by sharing our knowledge, experience and expertise.
Research has indicated that there are a number of common reasons why a new start-up does not survive those initial years. I know some professional service providers avoid start-ups due to the risk or reward of their investment. However if we advise, mentor or coach our clients and make them aware of the pitfalls, then they trade with their eyes fully open and have a greater chance of survival by planning what may be ahead and how they can steer their business accordingly for success. From the list of common pitfalls, I have chosen three to mention in more detail:
• Not enough capital – You will have seen this for yourself, but it is very common to see an under investment in the start-up business. They may have considered the capital investment to start the business, buy the assets and allow for the very early months. However too often there is a poor consideration for working capital which then as cash becomes tight restricts the options for the business in the future. This is a critical area where we can advise our clients on their cash management. Are they considering the impact of withdrawing the majority of the profits made, not having reserves or by having money tied up in debtors, all of which starves the business of cash to the point that the business fails or the owner gives up. A sensitivity analysis is a very visual tool I see many advisers using to demonstrate the likely impact ahead of such decisions.
• Poor market research – This is an area that moves outside our knowledge for numbers, but an area I believe we can assist more. Many businesses simply ask their family and friends for their feedback as their research for their entrepreneurial idea. However few undertake effective market research to identify the true opportunity, how their proposition can be shaped to fit the market requirements and solve the pain or problem of their ideal client. How can you encourage business owners to first profile their ideal prospect and then approach other business owners that fit that profile to complete their research? Perhaps we are in a role whereby we can help facilitate some of this research by introducing them to other clients or people in our networks?
• Marketing is too general – One area we will all be consciously discussing with our start-up clients is their expenditure, either as part of a forecast or a general discussion. Marketing is one area where money can easily be wasted. Yes most people will say that they can work for any customers, but most businesses only have a limited resource for marketing in terms of time and money. From my experience, I suggest focusing your clients on their ideal customer or niche to make their lead generation more cost effective. Why? Well working with their ideal customers will be much more rewarding and motivating, but they will be able to concentrate their marketing efforts more effectively as they come to better understand the needs and how they can help, be able to identify product or service gaps quickly and more easily adapt to change.
Other common pitfalls include:
• A lack of experience leading to skill and resource gaps
• Too few customers – recruiting too few or being over reliant on a few
• Prices too low
• Grow too fast
• Bad debts/poor credit control
• Poor control of overheads
• Competition activity – awareness is key
• Poor communication with staff, customers, suppliers
• Health issues of key people
• Bad management and supervision of people & processes
• Bad luck
Once your clients have survived those initial stages, which may be days, months or even a few years, they will then be looking to grow their business. In an adviser role, we can share what we have seen and demonstrate our expertise in supporting this objective.
Again research indicates that there are some common barriers to growth, which we can highlight and help our clients to find the solutions to these potential obstacles. The majority of our clients will all suffer from a lack of time, the need for systemised processes and sometimes a change in attitude, but considering the common barriers, I have chosen three more to look at in more detail.
• Not being prepared for growth – You will have examples where a business with the desire to grow has set out to attract more clients but are not fully prepared. I have personally seen too many businesses stagnate or the business owners become extremely stressed to a point of closure because the infrastructure has not been considered. With the attraction of new customers, will the business need more staff? Will they need different premises? How will the business owner let go and delegate but keep control of the quality? How will the relationship with existing customers be managed? What will be the impact on the working capital and cash flow needs? Will the business be able to keep focused on their core business or become distracted with a new offering? These are all areas we can explore with our clients by either sharing case studies from our experience or by simply asking questions that prepares our clients for what may lie ahead.
• Lack of ability of owners to let go or delegate – Many businesses, even our own, were started with the business owner in a technical, operational role and developed over time. All the systems have been embedded having been built around their ability and their belief it is the way to work. Trust and delegation can often be a challenge for business owners that like having control over everything that is happening. Offering a regular review with your clients to keep them focused and on track to the objectives that they have set themselves can add considerable value and as mentioned previously help them to maximise the resources around them.
• Raising finance – This is an area with our expertise and knowledge we can truly make a difference. Generally speaking, business owners are not aware of all the finance options available and once their bank has declined their request they then feel they will never be able to raise the money. With our networks we will be better informed about the options available and understand the format of the financial information required. Of course, we can then add value by presenting their financial information in that desirable format for the potential lender, but also in a format the business owner can understand themselves.
Other common barriers to growth include:
• A lack of strategy
• The economy and market conditions impact demand
• Lack of preparation of what is expected
• Poor/no leadership and people management
• Change management and reaction to change
• Lack of working capital/cash
• Not finding the right people
• No marketing plan or product positioning
In summary, I encourage you to step into the role of an adviser, mentor or coach and extend your offering as the trusted adviser.
Mike Foster is founder and director of The Entrepreneurs Mentor.
About Mike Foster
Mike is an experienced collaborative business leader and trusted new business development specialist. He is passionate about entrepreneurship, the marketing function and supporting other business owners with mentoring, training and business development activities.