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One of the most common reasons companies fail is attributable to growing too fast, losing control and eventually running out of cash. Most small business owners are great at what they do but may not be effective at running a business. They are too busy working in the business and not on the business. Experience has taught us to take a holistic view of the business in order to address all aspects of a growing business that need to be addressed in order to grow profitably. At my firm, Lanigan, Ryan, we have developed a tool to do that called The Growth Analysis, which focuses on five key areas every business needs to address in order to grow and maintain control.
We start by reviewing and fully understanding the company’s Vision and Values. Understanding vision is about clarifying why the company was started and where it wants to go. Many business owners have a clear idea of how big they want the company to be but do not know how to get there or what to address in order to get there. Creating a clear plan that will lead to fulfillment of the vision becomes a critical step in moving forward.
Values to an organization make up its cultural underpinnings. Understanding and identifying what the organizational values are will help the company communicate why customers will want to do business with them and why employees want to work for them.
Another key area we evaluate is the Competencies of its employees at all levels of the organization. Roles, skills required and benchmarks for advancement should be clearly defined. The company should be able to run effectively without the direct involvement of the owner at some point in its life cycle. Defining how people will be developed in order for them to move forward becomes a critical issue.A measure of a company’s strength is its Capacity. This is a direct indicator of how much work your company can handle. Capacity is measured by a company’s working capital position, cash and availability to financing, physical office and yard space, organizational structure and access to labor. The goal of a growing company is to grow its capacity at a rate that is conducive to supporting its growth. A strong banking relationship is key to supporting a company’s financial capacity.Controls and Procedures are the foundation and report card of every business. A good set of controls and procedures will allow management to produce timely and accurate financial information so the business can make informed decisions. It is beneficial to establish these controls and procedures early in the business lifecycle. Having them in place will help support the company’s growth, help build capacity and create opportunities.All businesses eventually will come to an end or transition point through a third party sale or transfer of ownership to successors. By focusing on the five key areas in our Growth Analysis, a company will have a greater opportunity to increase its value by building transferable value. A more stable and consistently run company that can grow at a predictable and profitable pace is the outcome we all seek.
Jeff Lavore, CPA
About the Author
Jeff Lavore is a manager of the firm and has been with the firm for over 19 years. Jeff has worked closely with owners and presidents of closely held construction contractors businesses to provide them with the tools and services that they need to develop and grow. He has performed audits, reviews, compilations, business income tax planning and preparation, accounting and consulting services for his clients. His experience includes managing construction contractor clients with up to $100,000,000 in revenue. You can contact jeff by emailing him at jlavore@lrmd-cpa.com or calling at 301-258-8900.