Most business owners, CEOs, and CFOs associate the rapid growth of a business with success. But you don’t have to search too long or far to find a company that met its demise after an attempt to expand at a fast and furious pace.
Of course, most business owners aren’t going to scoff at the idea of their small, startup company becoming the next Amazon or UPS! Lofty goals are admirable, but it is wise to proceed with caution. It’s not uncommon for the owner of a booming business to be overconfident and make the mistakes of growing too fast.
Mistake #1: Lack of Cash
One of the biggest problems of rocket-speed expansion is a cash flow that becomes a cash trickle, or even a cash desert. Growing a business takes money, often more money than there is in the company piggy bank. Up-front investment capital is needed for assets such as building and equipment as well as day-to-day operating expenses like salaries and inventory. Pouring capital into a new venture is always risky because no one can read the future. Unexpected events and circumstances affect the economy, which in turn can affect your business.
Mistake #2: Lack of Quality Control
Quality control is another aspect of a business that can suffer with the too-much-too-fast approach. The pressure to increase production puts stress on over-worked employees that may push them to cut corners. Hiring and training qualified people take time and can be hard to keep up with production. Morale can become low and tension amongst employees can build.
The downsides of rapid growth aren’t the only reason to consider taking a slow and steady approach to expansion. Business owners who learn to trust the process, take time to enjoy the fruits of their labor, and appreciate loyal employees seem to enjoy their success that much more. Speed can get you there faster, but it can also kill the business before it arrives at its destination.
Growth is a good thing but do it within the capabilities of the business. Every business has a “speed limit,” often referred to as the Affordable Growth Rate (AGR). Your company’s profitability and capital structure will dictate how fast you can grow. For help determining your company’s AGR, check out our Financial Model Tool Kit