With the new financial year just months away, getting clarity on your financial goals, which will feed into the financial health of your business, is a ‘now’ activity, rather than one that can wait until 1 July.
The Council of Small Business Organisations Australia (COSBOA) states that about 43 per cent of small businesses don’t make a profit, and three-quarters of those business owners are taking home a ‘wage’ below the average.
For small-business owners who’ve been brave enough to take the plunge into their own business, these statistics are not only heartbreaking, they are potentially mindset-breaking as well.
When we wanted to expand our operations at Synthesis Organics, we had to have a good hard look at what expansion we wanted, how important each thing on our wish list was and then, the big question – how we would fund our runway to expansion.
When it comes to getting a cash injection, business owners have three choices:
- A loan, which can be difficult to obtain if the business’s cashflow doesn’t meet the requirements of the lender, and is also expensive, especially with interest rates having increased so much in 2023.
- Via equity share sales and/or investors. This can be tricky, as it’s like a marriage, and businesses need to be careful whom they decide to get into bed with, and what the ‘hidden’ costs are. By ‘hidden’, I don’t mean monetary. There can be a whole raft of often unspoken expectations and compromises that your ‘angel investor’ may want, turning them into more of a devil. Also, many small businesses tend not to have a high valuation, which creates a double-edged sword of needing the funds to lift the valuation, but having to sacrifice a larger-than-ideal percentage of the business to obtain the funds. It’s a tricky and sometimes treacherous double bind.
- Grants, which usually split opinions into two camps. One school of thought is that they are too hard to obtain, as the government demands so many hoops be jumped through that the effort is often not worth the reward. The other notion is that there are grants everywhere and you just need to know where to look and how to apply for them.
Our grant person had this sage advice: Make sure the grant aligns with the business’s goals – don’t allow the promise of a grant to take you off track. Too many businesses shift focus or change direction to make the square peg of a grant fit the round hole of their business.
“COSBOA states that about 43 per cent of small businesses don’t make a profit.”
So, having weighed up the options outlined above when taxiing down the runway to our growth, we opted for the grant solution, which perfectly aligned with the natural job creation that would come with our expansion.
The grant for which we were successful was a dollar-matching grant – which means we had to invest at least the same amount as the grant, which was $460,000 – and came with the condition that the funds must be spent on capital works rather than marketing, staff or day-to-day expenses.
The first third of the grant was released upfront, without us having to dollar match at that time, whereas the remaining two-thirds were reimbursed, and only once we had spent the money and delivered on the completed capital works project. There was also another condition: we had to create another 23 full-time roles within the business within two years of completion of the capital works project. We are about halfway through this, having onboarded 12 new staff to date.
The capital works project involved us building a new HQ from scratch in the Byron Bay Hinterland, to house not only our head office staff, but also our entire manufacturing plant and our organic farm, from which we plan to harvest the ingredients for our skincare range.
The grant has already enabled us to:
- Scale our business sustainably without needing to sell equity.
- Increase the value of our business so if we do work with investors in the future, it is from a position of strength.
- Offer sustainable employment opportunities in regional NSW.
- Do philanthropic work gifting valuable industry expertise and opportunities to not-for-profits in the community.
Thanks to the grant, and an enormous amount of hard work from our team, the outlook for the business is very positive, as we are now able to scale and serve a much wider audience in terms of production capacity.
Our revenue has increased in the past 12 months by 800 per cent, thanks to the grant and also the development of a new ‘Notox’ product (a natural alternative to Botox) that has been embraced widely by consumers wanting a more natural, sustainable approach to skincare.
As a direct result of the grant, we are now able to export to countries requiring GMP certification (Good Manufacturing Practice – an international manufacturing standard for cosmetics) as our new HQ is set up for GMP and will be audited for compliance by the end of this financial year.
So, you might be thinking that the grant has solved all our growing pains? No growth is pain-free, and because we needed to spend the money before being reimbursed, there were financial challenges that were beyond my scope of expertise. One of the best decisions we made during the grant process was to retain the services of an external CFO.
When he came onboard, it would be fair to say that we were excited about what was possible at the end of the grant but flying blind on how to survive the cashflow crunch during the expansion process. My business had never had any months when it was in the red but suddenly, with the outgoings required to bring the grant project to life, here we were looking at red for the first time. Without the assistance of our external CFO to provide financial clarity and a way to juggle and balance and forecast which money went where, I think I would be sharing a very different story with you.
An unexpected benefit of the CFO was that instead of burdening my partner or seeking the help of a psychologist during these testing times, I was able to have weekly meetings with him to alleviate my stress, understand and trust the process and stay on top of the financial side of the business.
With the help of our CFO, we would not have completed the project in the required timeframe. We also would not have had the financial clarity needed for safe passage of the grant funds nor the confidence to keep investing in the expansion of the business.
Thanks to our now very solid foundations, it took us only a year of work to put all the systems and processes in place to comply with the stringent GMP audit, which allows for global expansion. Our first overseas client is the Four Seasons in Indonesia and thanks to our GMP status, our products are able to be registered for import there.
We will now also be able to follow up on opportunities in the EU and China, which also require GMP manufacturing facilities.
None of this would have been possible without the financial clarity we gained from both the grant and the input from our external CFO.
This article first appeared in issue 44 of the Inside Small Business quarterly magazine
