The five stages of small business growth

Categorising the problems and growth patterns of small businesses in a systematic way can increase owners’ understanding of the nature, characteristics and challenges of business.

While small businesses vary widely in size and capacity for growth, they do experience common problems that arise at similar stages in their development.

For owners and managers of small businesses, an understanding of these common problems can aid in assessing current challenges and help anticipate the key requirements at various points.

Stage 1: Existence
At this stage, the main challenges of the business are obtaining customers and delivering their product or service. The owner usually does everything and directly supervises everyone. Systems and formal planning are minimal to nonexistent and the overall strategy is simply to remain alive.

Stage 2: Survival
Reaching this stage means the business is a workable business entity. It has attracted enough customers and satisfied them sufficiently with products or services to keep them. The key problem has shifted from mere existence to the relationship between revenues and expenses.  Systems development is minimal and the major goal is still survival.

Stage 3: Success
At this stage, owners usually face the decision on whether to exploit the company’s success and expand or remain the same and keep the company stable and profitable. A key issue to arise is whether to use the company as a platform for growth or as a means of support for the owners.

Stage 4: Take off
In this stage the key problems are how to grow rapidly and how to finance that growth. In regards to cash flow, owners must determine whether there will be enough to satisfy the great demands growth brings. This is a pivotal period in a business’s life. If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold at a profit provided the owner recognises their limitations. Often those who reach Stage 3 are are unsuccessful in Stage 4 because they either try to grow too fast and run out of cash or are unable to delegate effectively enough to make the business work.

Stage 5: Resource maturity
The greatest concerns of a business entering this stage are controlling financial gains brought on by rapid growth and retaining the advantages of small size.  Businesses who reach this stage have the resources to engage in detailed operational and strategic planning. The business’s systems are extensive and well developed. The company has the advantages of size and financial resources, and if it can preserve its entrepreneurial spirit, will be a formidable force in its market.  

ATO teams with insurance policies to identify artworks and collectibles

The ATO has begun working with insurance companies to assess artworks and collectibles owned by taxpayers and identify the owners of these kinds of assets.

There have been many instances where the tax office has identified ‘lifestyle assets’ that were not being properly accounted for. Since some assets may be subject to capital gains tax (CGT) on disposal, it is fundamental taxpayers are aware of properly accounting for their assets to avoid being hit with a CGT bill.

The ATO has advised taxpayers to be aware that:
– items purchased for more than $500 on or after September 20, 1985 are subject to CGT, even if they are kept for the personal use or enjoyment
– special CGT rules apply to items that form part of a deceased estate
– the date of an asset’s purchase or auction needs to be accounted for; not the asset’s settlement date

From July 1, 2016, the rules regarding any collectible and/or artwork owned by an SMSF include:

• the collectibles cannot be stored at an SMSF trustee’s residence

• an SMSF trustee or a related party is not permitted to lease or use any of the collectibles

• the collectible must be insured by its own separate policy

• the storage decisions by the trustees must be documented and minuted

• if the collectible is to be sold to an SMSF trustee or related party, then a valuation by a qualified independent valuer may be required to determine the market value

Tax-free insurance policy bonuses

After a taxpayer has held a life insurance policy for ten years or longer, the reversionary bonuses received on that policy become tax-free.

Life insurance policies are issued by life insurance companies and friendly societies.

A reversionary bonus is profit earned annually on traditional life contracts on top of the sum insured that is added to the amount of an insurance policy payable at the maturation of the policy or the death of the person insured.

For taxpayers with policies that are less than ten years old, stipulated amounts are included in that taxpayer’s assessable income and a tax offset is available.

A bonus is not considered to be assessable income if it is received:

• At least ten years after the policy was first acquired

• Under a life assurance policy that was part of a super fund or scheme when the person on whose life the policy was effected passes away, has an accident, falls ill or becomes disabled

• As a result of severe financial difficulties provided the policy was not taken out with a plan to mature or be terminated within ten years

LinkedIn Showcase Pages

LinkedIn’s ‘Showcase Pages’ are designed to help businesses build audience engagement around the different products and services they offer.

Showcase Pages were introduced when LinkedIn removed the ‘products and services’ tab on company pages. Now, Showcase Pages are the only option for businesses wanting to display their products and services on the LinkedIn platform.

And while the Showcase Page feature can be beneficial for businesses with an established product line, just because the feature is available doesn’t necessarily mean it will be the right fit for you.

Here are some of the benefits and problems of the feature to help businesses decide whether they should use it as an extension of their company page.

Benefits

• Showcase Pages are extensions of your Company Page

If your business has multiple products or services, each with their own unique customer segment, then Showcase Pages allow you to separate your communication for each audience without cluttering up a single Company Page. At the same time, customers will visibly see the link between the service or product they use and your business’s company as a whole, allowing them to explore other products or services your business has to offer.

• Showcase Pages have some similar features to a Company Page

You can post updates, feature LinkedIn groups connected to your product or service, and see detailed analytics on your updates. Unlike a Company Page, businesses cannot add any “specialties” of their product or service, or allow team members to connect their personal LinkedIn profiles to a showcase page.

• You can engage with specific customer segments

If you have clearly defined target audiences or are trying to encourage particular customer behavior, the ability to segment users and the messaging your business delivers to them on LinkedIn can be a big help.

Problems

• No more user recommendations

A benefit of the products and services tab on a business’s Company Page was that LinkedIn users could “recommend” the business’s service. User-generated content like that is gold for marketing your business online, as it can increase your business’s credibility and demonstrate that your business isn’t the only one who thinks highly of your services.

• Starting from the beginning, again

Another obstacle with creating a Showcase Page for your business’s product or service is the one you had when you first started your Company Page—you have no followers. This is particularly problematic for small businesses who are already strapped for time and resources.

• Reconfiguring your content strategy

Creating Showcase Pages creates the need to reconfigure a business’s online content strategy. If a business was regularly posting updates on their Company Page to an engaged audience, it would now have to consider what that looks like going forward. Having multiple Showcase Pages means there are now more channels that require their own messaging.

Digital marketing strategies for small businesses

Marketing online can be daunting for a small business. With the many social and digital platforms available (Facebook, Twitter, websites,  Google+, emailing and blogs) quite a lot needs to be considered.

To help out, here are five digital marketing tips that every business should know:

• Learn by example

Digital marketing is all about how much effort business is willing to put in. While a big budget isn’t always necessary, being driven and having a desire to try new things is essential. Before jumping on the digital marketing bandwagon, business should look at the digital marketing strategies of those businesses that are doing well. Take a look at those who have a strong, loyal, online following, as well as other companies in your industry.

• Understand your audience

The goal of digital marketing is to get potential customers to engage with your brand so that you can sell your products to them. And since it is virtually impossible to do that without understanding those who you’re trying to sell to, spend time asking for feedback on your products or services, engaging with your customers wherever they are and embracing complaints.

• Communicate with your customers

There is no such thing as a ‘one size fits all’ when it comes to communicating through digital marketing. For example, younger customers usually prefer mobile apps, whereas older customers are more likely to prefer email. So, if your business sends out emails, consider the email structure, from the subject line to the content and design. Businesses could also have a blog as part of their website. Blogs are a useful digital marketing tool because they offer a personal insight into your business, making it feel more human and approachable. Having a presence on social networks can also help raise a business’s profile.

• Understand the power of Google and SEO

SEO (search engine optimisation) means making sure your website ranks well in search engines like Google. The job of a search engine is to provide search results that are useful to the people who use them. To accomplish good SEO results, businesses need to help search engines achieve that goal by using a strong website structure, publishing relevant content, using keywords in category tags and page titles and ensuring their website is accessible on all devices.

• Focus on sales

Since digital marketing is all about sales, businesses need to be using quality accounting software to keep track of their marketing expenses to compare them with any increased sales revenue. Keep renewing marketing campaigns and testing new ideas to find out the best way to promote your products.

Acquiring property through an SMSF

Members of a self-managed superannuation fund (SMSF) looking to acquire property through the fund need to be aware of the risks involved in the strategy or risk substantial penalties.

One of the considerations investors should be making if they are deciding to put a property in their SMSF is whether the strategy will improve retirement outcomes. Ultimately, investment decisions, such as the aforementioned strategy, will have ramifications for whether members have a comfortable retirement or need to rely on government support.

SMSF members should also consider the liquidity of the current assets in the fund. As property is a large, illiquid asset the fund should have enough cash on hand to pay day-to-day expenses. If the property is the only asset in the SMSF and it is in pension phase, it may not be able to supply a sufficient retirement income to its members.

Members purchasing property through debt have several restrictions on their investment under the limited recourse borrowing arrangement (LBRA). To establish an LBRA, a 20 per cent deposit is required and enough money to cover stamp duty and legal expenses within the SMSF, or ready to roll over from another super fund.

The fund will be assessed on its borrowing potential based on members’ superannuation contributions and the rental income from the property. Lenders will often require a personal guarantee from the SMSF trustees as the lender can repossess the property if an SMSF cannot meet its repayments.

In addition, if property is purchased using debt any improvements made to the property cannot change the nature of the property. Improvements must be paid for by cash in the fund rather than using further borrowings to pay for expenses.

Investors need to ensure they meet the obligations of the fund, such as having sufficient cash held in the fund. If the member isn’t receiving contributions, or the property is vacant for a period, then the fund will risk becoming a non-complying fund and may face severe penalties.

Deciding on an executor

Whether you are updating or creating a Will, designating an executor is not an easy decision.

The role of executor requires a great deal of commitment. The executor of a Will holds the responsibility of administering your estate and ensuring your wishes are carried out in a time-efficient manner.

When choosing an executor, a will maker must consider who is best to take on the role and associated responsibilities. There can be more than one person nominated as executor for the Will. In many situations, the executor(s) can also be a beneficiary of the estate.

Some of the immediate responsibilities of an executor include arranging the funeral, requesting and obtaining the death certificate, finding the original copy of the Will and beginning to protect and insure assets – such as changing locks on property and photographing expensive assets.  

The executor is also responsible for obtaining probate, collecting any debts or investment income, claiming life insurance, selling assets and distributing the remainder on the estate. The full administration of a deceased estate can take up to a year.  

Due to a large amount of responsibilities, it is best to discuss the role of executor with the intended person(s) before you nominate them in your Will. The nominated executor should also be informed of where your Will is kept.

Knowing your customers

A sad fact of business is that many small companies that create products simply don’t think about the customer. They think about how they can get customers to buy, but when it comes to actual product design, they focus on issues such as features, cost, and production rather than usability. What’s often overlooked is how real customers really behave.

Small business owners are even more likely to fall into that trap. After all, they are the ones who are lucky if they can get their products out the door in time to make the deadline for a big order or trade show.

However, there are processes businesses can follow to better understand how customers interact and use their products.  One such process involves creating “personas” or archetypes of customers, and then keeping those personas in mind as you design and market your products or services.

The first step of the process, ideally, is to get out of your office and meet with customers or potential customers. To make these interviews most effective:

1. Go to them: Ideally, see customers in the setting where they’ll be using your product or service. It’s preferable not to just conduct interviews over the phone or in a conference room.

2. Approach the process with a blank slate: you want to learn as much as you can, not just confirm your pre-conceived notions.

3. Ask open-ended questions: If you’re designing a new product, ask questions about how your customers currently do whatever your product or service will address.

4. Observe: Watch how your customers interact with your product (if it’s already developed) or with whatever products they currently use. What do they do first? What seems clumsy? What else is going around them at the same time? From observation, you’ll almost certainly discover ways to enhance your product or service.

Once you interview customers, you’ll have a lot of raw data. Now comes the important part: compiling that information into “personas.” Review all your notes to find the characteristics common to major types of customers. Then, create a few fictional individuals – give them names, ages, personalities, descriptions – to represent customers with those characteristics. At most, create just a handful of personas, representing the major types of customers you serve.

Realistically, as an independent entrepreneur, you may not have the resources to go out and fully implement these data-gathering methods. But even using a highly-simplified version of this process can be a huge help in bettering understanding your customers.

Cash flow statements

Contrary to what some business owners may assume, a cash flow forecast is different from a cash flow statement

Cash flow forecasts look forward while cash flow statements look at the past to report cash generated. Cash flow statements are critical financial statements and are very useful in determining the short-term viability of a business; particularly its ability to pay bills.

A cash flow statement accounts for the cash that has come into a business over a quarter or year and the cash the owner has paid out. The statement is prepared along with a business’s balance sheet and profit and loss (P&L) statement.

While they are similar, P&L statements track revenues and expenses as and when they occur. A cash flow statement allows owners to see how much cash their business has generated and excludes non-cash revenues and expenses.

P&L statements do not track when cash enters a business’s bank account and going off these statements alone will not paint an accurate picture of a business’s cash posture.

For those who seek investment, a cash flow statement is particularly important as it provides a clear idea of the short-term viability of a business. For businesses that consistently generate more cash than they spend, the statement can also shed light on:

• The business’s ability to pay off debt

• Potentially increasing the business’s dividend

Seven steps for business growth

Once your business is up and running, you need to identify and understand what works and what doesn’t. Owners need to take a step back and be strategic about how and when they should grow their business.

Opportunities for business growth can be exciting, but turning an idea into a practical reality takes careful research, planning and investment. Here is a short checklist owners can use:

Review your cash flow
Growing a business starts with reviewing your cash flow. Work out how much money comes in and goes out, and use this information to plan the year ahead. Identify how much money is needed to invest in the business’s growth and what it will be used for e.g. hiring employees or buying equipment.

Review your daily processes
Could your staff be more efficient in the way they do things? Check your business practices and policies and review day-to-day processes to identify what can be improved.

Prepare your team
Having a team of skilled and committed employees is key to business, particularly to those who plan on expanding. Consider how your team can be prepared for change and business growth.

Know your market competition
Businesses must be clear about their place in the market. Look at your market share and your main competition.  

Update your website content
Before you start encouraging new audiences to visit your website or blog, check that your site’s content is up-to-date and that the website can be easily found online.

Update your communications plan
A well-thought-out communications plan identifies the key messages you want to get across to your customers.

Prepare for an economic crisis
No one likes a downturn, but since they do happen, it is important to make sure you’re ready. Review your cash flow and identify the liquid assets you have. Setting up an emergency fund may be a good idea for when times are lean.