Most of us in business are striving for growth but less of us have considered if too much growth could be a bad. More specifically, could too much growth too quickly, be a serious threat to the survival of your business?
“From debt that grows faster than your earnings to new staff members that just don’t understand your business like your first few hires, growth presents a range of issues that can affect your company’s cash flow and solvency” – Real Business.
Increased growth sometimes = increased debt
It makes sense that if an opportunity for quick growth presents itself that it is seized. The increased sense of momentum can be exhilarating, however companies that grow quickly often take on a lot of debt to fuel their growth.
Borrowing in order to fund your business’s growth isn’t always a bad thing. Taking out loans on the assumption that rapid growth will be continual, however, can lead your business into risky territory.
Rapid growth, however, can often come to a rapid end. When you borrow heavily to let your business grow faster, it’s easy to run into debt issues when your growth slows down and your business’s quarterly profit stays at a steadier level
“A single bad month, a single missed customer payment or a single setback is often all it takes to cause your business to miss a payment on its debt, trigger a series of events that can lead to its eventual insolvency” – Real Business.
If your business has the chance to grow rapidly by taking on debt, make sure you consider the risks involved. Holding back on your loan might cost you growth, but ensures your business is more risk adverse in the long term – it’s about getting the right balance.
Wearing the ‘Growth Blinkers’.
Many entrepreneurs make the mistake of valuing revenue growth above any other metric. This is where the smugly part, comes into it! Patting yourself on the back and only focusing on growth can sometimes result in growth of revenue, but not of profit – that is quite difficult to see when your company appears to be growing every month.
When your company is growing every month, it’s easy to spend more time focusing on vanity metrics like total revenue, all the while assuming everything is okay, rather than actually looking in more detail at other areas of your business.
Rapid growth can sometimes expose flaws of or issues in your businesses structure or processes that were less apparent at a slower growth rate.
When these issues affect your business’s solvency, the results can be disastrous. As your business grows, keep a close eye on all of its metrics – not just total revenue – so that you’re fully aware of your business’s financial status and solvency.