Planning for Growth for SMEs

Planning for Growth for SMEs | Chio Lim Stone Forest Planning for Growth for SMEs in Singapore Presented by Doreen Quek Director, Corporate Advisory Services www.RSMChioLim.com.sg Planning for Growth for SMEs | Chio Lim Stone Forest Planning for Growth for SMEs IMAGINE a merchant in days gone by who was about to embark on a journey to a foreign land to trade. He would likely note down directions clearly, as well as any potential hurdles. And as he made his journey, he would refer to his notes to make sure he was on track - and change his plans accordingly if he found a more efficient route. This same methodology is probably applied by many SMEs and still works today. For example, if your destination is to get your company listed on a stock exchange one day, you will map out how you want to grow your business and avoid unnecessary risks. However, as your business or your headcount grows, a more systematic framework to chart the business’s growth and communicate plans to various stakeholders and staff, will be needed. Planning for Growth for SMEs | Chio Lim Stone Forest The following is a simple framework that entrepreneurs can adopt to map out its growth strategy: This model is set in a wheel to indicate that planning for growth is a continuous process that does not stop, and signifies the need for constant review and improvement on what was last set down. It aims to help you set SMART (Specific, Measurable, Achievable, Realistic and Timed) goals and key performance indicators (KPIs) to track your growth, so you are on top of your business pulse while traveling toward s your destination. It helps you to clearly define your business and revenue models and analyze how to leverage on areas that generate better returns with lesser efforts. Many entrepreneurs who adopt the framework find it useful in enabling them to define their business and focus on the big picture while juggling with daily challenges. To help you get started, we have applied the model to the three stages of growth of a business referred to as start-up, growth and internationalization phases - in the tables to demonstrate the issues you will need to consider at each phase. The 7 elements in the planning framework You will typically start by defining your business model, which will focus on your core competence, and which you will continuously review and strengthen by clarifying your value proposition (Business Modelling). Closely tied to the business model will be the revenue model, which aims to optimise profit and cash flow. In Revenue Modelling, you identify your current and potential revenue streams with their supporting cost structures, and quantify the impact on your profit and cash flow. Having determined your business and revenue models, you will plan and manage your resources to produce your output. Under Capacity Management, you will determine the optimum capacity at which your business can operate based on its present facilities and infrastructure, and configure your capacity to generate best returns. Having the funds to sustain your operations and the people to run it are the natural next steps. Here, you will perform Funding and Management Structure reviews respectively. Review your funding structure, capital expenditure needs and working capital requirements. Leverage on financing options that best meet your business needs. Having a team you can count on to ride the ups and downs with you is just as important. You will need to identify and bridge any management expertise gap to make sure you are able to efficiently execute your business plans. The eye on efficiency in a business cannot be over-emphasized. In Business Process Re-engineering, you review your operating procedures and processing to tighten systems and controls, in order to improve productivity, preventing leakage and enhancing service quality. Last but not least, what you cannot measure, you cannot manage. You will need KPIs. This is literally keeping on the pulse of your business. Planning for Growth for SMEs | Chio Lim Stone Forest The 3 phases of growth A start-up is generally defined as a business that has completed product development and its initial marketing. It has limited revenue and is seeking to expand its customer base. Its business is probably not yet profitable and requires funding to sustain its expansion until it becomes profitable. A company in the growth phase is defined as a profitable business with a stable customer base. With rising sales, it requires more capital and more resources. These monies are typically used for working capital, increasing production capacity, strengthening branding, and corporatizing critical business processes. Finally, when the company seeks to internationalize its business, it has already a profit track record and has been successful in the local market. It is now looking at overseas expansion through joint ventures, mergers and acquisitions, and strategic alliance with overseas entrepreneurs. (See tables on how to apply the model to the three phases of growth.) Start-up phase Identify your value proposition and core competency. Understand the industry, customers’ needs, the competition, and your resources constraints. Perform a mindset shift from forecasting what is achievable with more funds to what can be done with the available resources on hand. Growth phase Business Modelling Focus on your core competence & value to customers. Identify the focus of growth, in areas where you can leverage on your competitive strengths – for example, if your strength is in product development, focus on making the best products to meet the needs of your customers and appoint strong distributors to take care of the sales and marketing function. Apply the 80/20 rule and channel resources to few objectives that will deliver results in the shortest possible time. Internationalization phase Clarify the purpose of “Internationalization”, conduct detailed feasibility study prior to implementation, or explore strategic co-operation and collaboration with a local partner so that the strategy and execution are refined and modified to meet local requirements. Impute cash requirements of conducting business in a foreign country, including all taxes, duties, exchange controls, financing, legal and regulatory requirements and other hidden costs. Consider the structure of the investment, the time period required and impact of transfer pricing on the business. Planning for Growth for SMEs | Chio Lim Stone Forest Start-up phase Draw up the roadmap to commercialization and list the ideal and least resources that you would need – consider what, who, when, how, how much and identify if it is a “must have” item or a “good to have” item. Identify the products or services or the target customers that you can add the most value and give undivided attention to achieving your first success story. Revenue Modelling Identify the 20% of your business that gives 80% of your profits and cash flow. Work out your burn rate and what is the break even revenue that you need to achieve to sustain your dream Growth phase Identify the “cream” products and services and/or customers that you ought to be focusing on that will give you the best returns with the least resources. Compete with yourself by constantly surpassing your own standards of quality and make your products and services the preferred choice for these customers. Find ways to grow your cash, gross profits and manage your costs. Do not chase after turnover blindly. Internationalization phase Do not apply blindly the same successful revenue model in home country to an overseas market. Make efforts to change and localize the product/service appeal, test the pricing to uncover the price acceptance point. Start-up phase Identify the critical capacity that you need to invest in to bring in the revenue. Work with friendly suppliers and partners and seek as much help as you can to sustain the limited funds that you have. Growth phase Capacity Management Mobilize your resources to best meet your objectives. Consider what is limiting your capacity to increase your revenue and profits, the production plant and equipment, the people, the space or funding. Find ways to expand your limited capacity, such as implementing shift hours, leasing equipment, working at customers’ premises; outsource the lower value added or non-core processes, speed up collections etc. Internationalization phase Avoid making huge investments in land and plant and machinery. Make sure capital investments are backed by objective and independent survey of future demands. Build flexibility by considering if you need to have the full line of capacity or add as and when required. Planning for Growth for SMEs | Chio Lim Stone Forest Start-up phase Seek micro-loan that provides loans of up to $50,000 to fund your operations. Explore seed funding from Spring Singapore if you have an innovative and scalable business plan. Growth phase There is a wide range of trade facilities, such as letters of credit, factoring of bills, etc offered by commercial banks to help growing companies. The type of facilities, quantum and the condition of the loans vary in accordance to the Company’s balance sheet position and credit risk rating. Talk to participating financial institutions to apply the loans under the LEFS (Local Enterprise Finance Scheme). Explore governmental grant from Spring Singapore to defray the cost of capability development. If the Company has established a decent profit track record, explore raising equity funding via OTC (Over-the-Counter) market, listing on Catalist or the Main Board of the Singapore Exchange. Funding Structure Leverage on the financing options that best meet your business needs. Internationalization phase Seek strategic partner to joint venture with to mitigate the risk of your overseas ventures. Explore government grants and tax incentives from International Enterprise (IE) Singapore. Raise equity funding from the capital market to fund your overseas expansion plan. Start-up phase Management Structure Have in place the right team whom you can count on. Find the right equity partner/(s) with complementary skills to support you in your business. Growth phase The right team is like a strong pillar to your business. Give them the support and keep them well motivated to continue doing the best for your business. Internationalization phase Put the right people whom you can trust at the right place to lead the execution of the internationalization plan. Business Process Engineering Continuous effort to improve efficiency by streamlining processes, redesigning workflow without compromising on quality and control. Start-up phase Simplify the processes to allow you to focus on meeting customers’ needs and building up your track record. Growth phase Cash flow and profits can be enhanced or capacity expanded simply by streamlining processes to improve efficiency or tightening controls and reducing wastage. Internationalization phase Clear integrated processes in place to enable monitoring of performance and reduce time to market commercialization of products and services. Planning for Growth for SMEs | Chio Lim Stone Forest Start-up phase Establishment of KPIs Keeping your fingers on the pulse of the business –use KPIs as a tool help you measure and manage the performance of the business. Set achievable and realistic targets and find the right path to pluck low hanging fruits. Growth phase Establish the KPIs such as sales, gross profit, collection days, inventory days, overheads per units of output, gross profit per staff, and use them as safety markers for you to measure and manage the performance of the business. Internationalization phase Bridge the distance gap by having prompt periodic reporting of KPIs. Investigate exceptions and follow up on action plans with tenacity. In a nutshell, how you build your business successfully depends very much on how you drive the business, and having a systematic framework is akin to having a compass to guide you towards the desired direction. About Chio Lim Stone Forest Chio Lim Stone Forest (www.rsmchiolim.com.sg) is the largest accounting and business advisory group outside the Big 4 in Singapore, with a total staff strength of 500 in Singapore and 120 in Shanghai, Beijing, Suzhou and Shenzhen. Our reputation is built on technical competence, proactive client servicing and a commitment to uncompromising integrity, professionalism and high standards of service. Chio Lim Stone Forest is the Singapore member of RSM International, the world’s seventh largest accounting and consulting network, with over 660 offices in 66 countries. Member firms are wellestablished practices of high local standing, often ranking within the Top Ten in their own locality.