You would be hard pressed to find a business owner who doesn’t want their company to grow and thrive. Increased customers, sales and profit is what all successful owners strive to achieve. Growth is good, isn’t it?
Most of the time business growth is a positive thing. However, rapid growth can be a real risk for businesses. Here are some of the pitfalls to look out for when you’re enjoying accelerated growth.
The cost of debt
Rapid growth often means taking on more debt. Borrowing to fund growth is not necessarily a bad thing. But doing so on the assumption that growth will be continual is risky. Make sure you do proper forecasting and understand the impact a slowdown may have on your cashflow and solvency, before you borrow.
Do not lose track of your numbers
When your business is smaller you are likely to have a good ‘feel’ for your numbers. But when you reach a certain level of growth, it is hard to keep an accurate handle on these in the same way.
Invest in good financial systems that deliver management information quickly and accurately. If you are too stretched, you may need a full time or part time finance director. At very least, look to your accountant to help bridge the gap.
Over valuing your sales
It’s tempting to think that when sales are booming, everything else in the business will be great. Revenue is just one metric of how successful your business is.
Take a wider view that includes understanding the impact of increases in overheads, be these investment in additional people, capacity, product development or technology.
Don’t forget the cash
Nothing is more valuable to a growing business than cash. When you’re generating more and more income, it’s easy to overlook the importance of collecting cash. On one hand, fast growth increases the rate at which cash comes into your business (if you’ve got good cash collection practices) but it also increases that rate at which you spend. Keep an eye on your cash balances.
Bigger, better operations
Fast growth means that your business will have to respond to changes quickly. It’s extremely important to have the right people and infrastructure in place to ensure you can meet the growth in demand.
One of the most difficult adjustments to make as a business owner is accepting that you cannot be as wrapped up in the day-to-day details as you used to be. You need to step back and focus on the bigger picture. Of course, this also means that you have to build a team you can trust to take some of the slack.
Quality versus quantity
Fast growth may tempt you to think about an exit earlier than you may have planned. While strong revenue is important, potential buyers will be looking more closely at whether your profits are also growing and whether these are sustainable.
Take time to understand what drives value in your business and appreciate that it can take a good 3-5 years to get your business to a positon that enables you to command the maximum price on exit.
Business growth is exciting but it is important to plan for growth and manage it well.
Don’t lose track of your numbers and make sure that your people, infrastructure and technology are built to scale so that your business can cope with growth and sustain it.
For help and advice with growing your business, talk to our business advisors.
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