Failure to keep a close eye on the ball during expansion will lead to costly mistakes.
An example of a business which is doing it right is Listers of Coventry. The group, ranked 23 in the AM100, has doubled its turnover to just under £400m in the last four years. Yet this has neither been at the expense of profits nor returns on capital employed. Its consistent performance has earned it a place in the Sunday Times’ Fast Track 100 league and the honour of AM’s Large Retail Group of the Year.
For a more high profile illustration of growth, look at Reg Vardy plc, ranked two in the AM100.
It is nearing its short term goal of owning 100 dealerships by targeting under-performing businesses and those whose owners are looking for an exit from motor retailing. Its strong leadership team, headed by Sir Peter Vardy and Robert Forrester, is aware of the opportunities such dealerships can offer.
They also realize that such acquisitions can cause a few problems in the short term. This is indicated by Vardy’s 13% drop in operating profits last year.
But once given a couple of years to get the Vardy model into place, the new sites are expected to contribute to the group’s profits.
Forrester explains: “There is concern that the new car market is unlikely to pick up in the next 12 months. That said, there are opportunities for profit growth where businesses are run correctly.”
Vardy is also looking outside the core business for growth. It has already increased its fleet services division, has doubled the number of cars sold via its online operation, and sees contract hire motoring as another opportunity.
Vardy’s business plan has kept its gearing at a low level and generates high levels of cash, which leave it in a strong position to continue towards its growth target.