Business mentor: Dealing with growing pains

Q. I want to take a good look at my business to start the new year to see how I can improve it and prepare for growth. Any tips?

A. Bruce McLachlan, Westpac's general manager business banking, replies:

The new year is a time when business owners often pause to reflect on their goals and aspirations for the future.

A break from day-to-day operations provides an opportunity to consider where the business is at, and how best to move forward in the new year.

For many New Zealand businesses the challenges of growth and change can be a source of great apprehension. This is often because firms lack the necessary support to manage the important transitions that characterise growth.

According to Ministry of Economic Development research, an inability to adapt to the changes brought about by growth is a key cause of failure for many New Zealand firms, in particular small and medium-sized firms.

There are many important stages in a businesses life, but years two and three are often make or break for smaller businesses. After the first year, cash flow usually improves and opportunities for expansion begin to emerge.

However, many firms stumble at this stage because of otherwise avoidable factors such as poor business planning or financial management.

A traditional one-size-fits-all approach to business and banking advice has meant that businesses often don't receive the support and guidance which could help them find their way through these critical stages in their development.

Firms often struggle to move forward at the very moment they are poised for growth and expansion, usually because they lack the tools and knowledge to take their business to the next level.

As well as affecting the confidence of many emerging entrepreneurs, this trend affects our ability to compete effectively in world export markets.

We need to do more to assist our businesses, big and small, to meet the challenges of growth and change. Understanding and managing the different stages of a business development is a key factor in helping our firms to become more resilient, and competitive on global markets.

Companies with ambition need the right knowledge and advice, including help with evaluating and responding to competitors, regulations and new legislation.

Auckland company Jagas Paving, established 3 months ago from the sale of Jagas Concrete, is a good example of a business successfully moving from one stage of its life to the next.

The former business had been in operation for around 10 years and had passed through the business life cycle a number of times. With new owners there has been recognition of growing competition and a decision to target the upper end of the market.

"The first three months were a time for realising where we were and deciding what we needed to do," said new owner Craig Bruce.

"We met the big customers and assessed where they saw room for improvements. The first six months of this year will be about putting that into action."

The business is now characterised as being in a growth phase, and is likely to require additional investment, product refinement and development of a new business plan.

Small and medium-sized businesses represent the future of our economy. If we want more of these businesses to grow and succeed in the long term, then we need to focus on helping them manage the challenges of growth.

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* Answers are courtesy of Spring - A State of Mind for Business.