May 21, 2024

Rapid business growth

The Pains of Rapid Business Growth

Here is a problem most business owners would love to have! Imagine facing the prospect of your business growing too quickly, making you almost unable to keep up with the pressure of customer demand.

Perhaps you have envisioned expanding to another location. You may also consider expanding interstate, increasing staff, or moving into a larger premises or factory.

Is this a good situation to have or not? Good growth vs. Bad Growth needs to be identified and managed. Many small business owners fail to realise that rapid business growth can result in specific dangers and potential liabilities that might capsize their company’s plans and growth. Expansion requires a robust strategy, cash flows, and what-if scenarios.

There are potential risks associated with business overgrowth that you, as the business owner, need to know the warning signs. Good growth is achieved by managing growth and knowing the warning signs. Let’s explore possible speed humps!

Business growth takes money, and working capital is relatively low during the early stages of development. Small business owners can start with a massive debt to feed their growth machine, and thus, here begins the vicious debt cycle. For some businesses, debt increases rapidly with growth and can eventually cripple their business.

After depleting your working capital, the next logical step would be to apply for another loan. While your revenue may seem to be growing, so will your debt. Manage the debt and ensure your business can manage the loan repayments.

Watching the sales come in may thrill you with the growing demand for your product or service. However, you have to ensure you can meet your customers’ requirements. In the face of rapid business growth, you are constantly challenged to maintain the quality of your service versus the increasing quantity.

In keeping up with growth, business owners are tempted to explore and venture into other sales areas. It is challenging to resist the temptation of new opportunities and larger contracts, distributions and bigger opportunities. However, if you stray too far from your primary business model, your business could falter. As they often say, stick to your lane. While trying to succeed in another unchartered area of your business, your original business model and earlier client base may take a backseat. Often, looking at the existing base might be best to ensure the opportunities have been exploited.

As your business experiences rapid growth, sometimes employees are not ready for development, both in skill level and capacity, leaving you in a challenging position. Your employees need to grow with the company, but giving them more significant responsibilities when they are not ready may be a recipe for failure. Chances are, you might lose some of your employees.

When the demand for your business increases, you may find that your profits are diminishing. This is because the costs of meeting this increasing demand will begin to outpace your business’ cash flow. You realise that you must pay for overtime for the extra hours your employees agree to work or ensure you have a larger inventory and incur substantial holding costs. Holding costs for stock can eat into working capital.