Ever wondered how successful entrepreneurs manage to grow their small businesses into vast money making empires?
We spoke to several leading businessmen to find out how they achieved growth. Here are their top five methods for growing businesses.
1) Organic growth
Most business start small and grow using profits that are continually reinvested into back into the company.
It’s fair to say that this is the safest, most risk free way of growing your business. You won’t lay awake at night worrying about huge repayments or loss of control. But it’s slow and can be arduous at the beginning.
Yes, organic growth takes away the risk, but you could be waiting a lifetime to reach the scale of business desired or even possible.
In fact, some businesses require economies of scale in order to work in the first place, in which cases, organic growth is not practical.
2) Equity partnerships
Rather than invest profits back into capital, you can invest them back into people.
Setting up an Equity Partnership is essentially giving up a percentage interest to partners (staff) in your business. In other words, partnership equity represents the partner’s ownership interest in the business
Giving staff equity is a great way to get your staff fully invested in the growth of the business. This is something that can facilitate more rapid growth. As the saying goes, your best employee will only work half as hard as you do. But this might not be true if your staff are almost as invested in the business as you are.
It’s also something to seriously think about if you run an ‘asset light’ business that you intend to sell, eventually. For example, if you sell the business, it prevents a mass exodus of staff (rendering the business worthless).
Franchising your business can be a good way of supercharging your business. Essentially, you’re providing a ‘brand’ to entrepreneurs wishing to start their own businesses.
There are various ways to gear a franchise. For example, you could take a percentage of earnings, or sell the franchise rights for a lump sum.
Not all businesses are suitable for franchising, but if you have a strong brand and a loyal following, it’s worth considering.
A good lawyer is a must, and other things you might need to consider is the overall loss of control, brand damage (from poorly operated franchises), and marginalising your income (although the overall pot could be a lot bigger).
4) Self financed growth
Whether it’s the ‘bank of mum and dad’, your life savings, or beg borrowing and stealing, self financed growth is the most common way of funding a business expansion.
Borrowing from friends and family is normally ill advised, especially if things don’t go to plan. If you do take this route, make sure you have frank and honest conversations about the risks, and have a clear repayment setup.
Apart from traditional bank and business loans, Asset finance is something to consider. It is a type of finance used businesses use to obtain equipment they need to grow, but instead of buying the asset outright, they pay a regular charge to use the asset over an agreed period.
Arrangements like leasing and hire-purchase avoid the full cost of buying the asset outright. Whilst these may have been dirty words in the past, many business use asset finance to fund a large proportion of their assets, even things like full fleet of vehicles. Just ensure you’re aware of the terms and what you’re signing up for.
In business, a takeover is the purchase of one company by another. One way that successful entrepreneurs supercharge their business growth is by buying up competitor businesses, or businesses operating within their growth target.
Of course, this isn’t a cheap method of growth and requires some serious financing, but it does deliver ready-made, often profitable (or potential filled) businesses.
The beauty of engaging in business takeovers is that you can grow your business and eliminate the competition at the same time.
Of course, the method of growth that you choose depends on a number of factors, particularly the business type, existing scale, and access to finance. You also don’t need to pick one of these options. Most successful businesses integrate various methods of financing.
There’s also, eventually, the option of floating your company. That’s a whole other ball-game all together.