Business First: Your SME questions answered

Our business expert Roger Trapp responds to a selection of your questions

Q. My business is going quite well, but I find that as it progresses I am spending more of my time on administration. I have some IT for payroll, but I am thinking of expanding that to help with the running of the company. What should I do?

A. Information technology is increasingly helpful in the running of all aspects of a business - and increasingly affordable. Thanks to the internet, the sort of solutions that were previously the preserve of the largest companies are now available to much smaller ones. The trick is to shop around and ask lots of questions. You will be surprised what can be done.

Q. A larger company that I do some business with has approached me about forming a joint venture. Is this a good idea?

A. Joint ventures can be very successful. Large companies like them because they can give them the opportunity to get into new markets without the expense and risk of starting from scratch, while smaller ones can gain from access to the larger company’s resources. To decide whether it is a good idea for you, you must decide whether the gains outweigh the disadvantages in terms of whether you think you would do better in the long run on your own. It is a difficult balancing exercise that you need to take time to consider.

Q. My business has been growing quite well through word of mouth. But I feel we could develop even faster if we started to advertise. How should I go about this?

A. The old adage is that word of mouth is worth any amount of spending on advertising and other forms of marketing. However, in a world where advertising is commonplace, many companies feel they have to advertise if only to remind the world that they are there. If you do go down this road, do not expect instant results, but try to measure the effectiveness of different approaches by measuring responses.

Q. I run a quite successful small business that makes specialist foods. Until now, I have supplied local shops and small chains, but my friends and family have seen similar products in supermarkets and think I should begin marketing to them. What do you think?

A. The appeal of supermarkets is that they have nationwide spread and provide access to many more shoppers than smaller shops. However, it should not be forgotten that it is easy for new products to be lost on supermarket shelves because there are so many rivals. In addition, you have to be clear about how much you need the supermarket to pay you for the approach to be viable. Do not be drawn into going for scale and losing margins.

Q. I run a business producing parts for the engineering industry. We have been fairly successful, but are coming under pressure because of costs and I am thinking of outsourcing some of our production to the Far East. Is this a good idea?

A. This is one of the most frequently asked questions of the moment. Many businesses – large and small – have found it has helped to move at least some of their production overseas. However, the policy is not without its risks. In particular, you must feel confident about managing the relationship with your new supplier despite the great distance and believe that your quality will not diminish.

Q. I have been running my small business from home for several years. It has been reasonably successful and I have two people working with me who also operate from their own homes. We have been discussing moving to business premises so that we can all be together. Is this a good idea?

A. Many businesses of all sorts start from the founder’s home. Typically, the front room, a spare bedroom or even the kitchen table. This is helpful since it reduces overheads in the early stages. But it can also impede growth for a variety of reasons. What you need to do is decide whether the advantages of your current situation still outweigh the disadvantages. If not, it may be time to move. But then you have to consider a whole range of other issues, such as where to be based and whether to buy or to lease.

Q. I recently set up a business in the online retail sector. It is going well and my co-founder and I are looking at expanding our management team. How should we go about this?

A. You and your co-founder need to decide what exactly you are looking for in these new recruits. It can be very difficult for even the best qualified and most experienced manager to join an entrepreneurial team because the entrepreneurs can be used to working with each other almost on a tacit basis and doing just about everything that needs to be done – usually on a “fire-fighting” basis. You need to decide how much control you are prepared to give up and make it clear what aspects of your job you need the new person to fulfil. If you do not do this, they will become frustrated and you may wonder why you are paying out a lot of your hard-earned cash in a new salary when you are still doing what you used to.

Q. I run a specialist retail business in the sport area. We have become quite successful largely through word of mouth and now have two retail outlets. Customers are suggesting we should develop an online presence, but I am worried about spreading ourselves too thinly and am also concerned by all the stories about security. What should I do?

A. This is an increasingly common issue for businesses such as yours. The simple answer is that you should seriously consider going online. There are two obvious reasons. First, it will help you improve your service to your existing customers. Second, you are likely to obtain new customers – particularly if you offer specialist products. As for the spreading yourself too thin argument, going online need not be too much effort. One way round it might be to use it as a way of passing responsibility to a young member of staff. But the security issue is not to be dismissed. Make sure you get good advice on protection against not just viruses, fraud and other external threats but against unauthorised access.

Q. I have been running a small manufacturing company for some time. It has been quite successful, but our niche is quite small and I am keep to expand the company. We have an opportunity to move into a new product area. Should we take it?

A. Any manufacturing business that is successful in the current climate must be doing something right. As a result, you and your team probably have some expertise that can be transferred into another market. Usually, such diversifications work best when the new business is not too dissimilar to your current business. The important thing is to weigh up the options. This is best done by carrying out a SWOT analysis. This looks at Strengths, Weaknesses, Opportunities and Threats. It is relatively simple, but really focuses the mind.

Q. My business – in a niche area of marketing – is going well and I am looking to expand. However, I need funding. How should I go about it?

A. The first thing to bear in mind is that finance is a lot easier to come by than it was a few years ago and – despite recent interest rate rises – it is still relatively cheap. How you should go about raising finance really depends on two things – how much money you want and how much control of the business you want to retain. If you just want funds to help you through a difficult period, you may just be able to get an overdraft from your bank. This is relatively straightforward and does not involve any loss of control. Once you start down the road of seeking outside investors, you may gain access to bigger sums of money but almost inevitably these investors will want to become involved in the business. If you are ambitious this may be the best route, but many successful businesses have managed to fund expansion out of profits.

If you have a question about SMEs, you can ask our business expert, Roger Trapp. Roger will be answering a selection of your questions right here – all you need to do is email them to businessfirst@independent.co.uk.