According to Lorcan Colclough, Partner, Audit & Business Advisory Services, Mazars, ensuring the success of this critical phase of growth requires careful planning.
Colclough explained: “Many companies don’t take enough time to fully consider the impact scaling operations will have on the business as a whole and this can result in unsuccessful expansion plans.
“Taking time to plan your strategy to scale up the business will not only involve considering funding options but also possible staffing issues, system and infrastructure upgrades, capitalising on technology as well as choosing the right partners to work with throughout the process.”
One of the first steps is to ensure the best management team and suitable governance frameworks are in place. “Having a strong board with a diversity of experience that will challenge decisions and strategies where necessary will be of significant benefit during the growth phase,” explained Colclough.
Another important aspect is the assessment of finance options available. “The funding option decided upon will often depend on the personal circumstances of the owners, the size and ambition of the company and its projected cashflows,” said Colclough.
Finance options range from raising external debt, investment from private equity, a management buy-out or through an initial public offering (IPO). Private equity or management buy-outs can work well where plans to expand involve the owners exiting the business or taking a considerable step back. Where investment is coming externally, it is important that the vision of the existing teams and that of the new investors are fully aligned to ensure a smooth transition.
Colclough warned: “Often investor relationships can become strained due to misaligned goals where the future strategy has not been clearly understood or communicated.”
Going down the IPO route also bears careful consideration. “While a market listing comes with a significant initial expense, it gives additional flexibility in terms of ease of access to further capital and does not carry future repayment burdens,” reveals Colclough. “It also grants the current shareholders the freedom to realise the value of the business through the liquidity of their shares.”
He added: “POBs also have the option of choosing to list on a smaller growth market as a stepping-stone before entering one of the main markets where the rules are more extensive and carry significant reporting commitments.”
An important, but sometimes overlooked issue, is the increased levels of accountability that comes with external investment. Reporting requirements and regular meetings with external investors, banks or shareholders will be more frequent and an IPO can mean participation from international shareholders.
Whether the process occurs organically or strategically, business expansion takes time and planning. All funding routes involve extensive due diligence process, often including regulatory filings.
“Partnering with the right ream of advisors who not only have suitable experience and expertise but take the time to understand the business and the requirements of its owners is vital to the process,” revealed Colclough. “Preparing for this next stage is an exciting and stressful time but marks a pivotal phase in a company’s lifecycle, signalling that management are anticipating an upward trajectory and further success for the future.”
This article first appeared in the Business Post on the 1st December 2019.