We are often reminded that the ultimate goal for a company is growth, but sudden growth can have a negative impact on cashflow and ultimately lead to problems. Profit, turnover and cashflow all have a different impact on the company, with cashflow being the most important factor. Without a positive cashflow, your business will no doubt find itself encountering difficulty.
Increasing the company’s debt
Although debt and growth are often interlinked in a business, poor risk management can lead to a cashflow crisis. As profits increase within a business, it makes sense to borrow more so that you can continue to grow. With a solid business model and careful risk management, this will rarely be a problem, but if the business model only works up to a certain point or risks aren’t identified, the debt to creditors will increase and become unmanageable. Management outsourcing will ensure that any risks are spotted before they become a problem and the business model is closely managed.
The quality of the product
Rapid growth can have a serious impact on the product or service provided by the company. For instance, if you specialise in a personal service, you may lose this aspect of the business if you expand the company, thereby driving clients away. If your trade is based on the quality of your service or product, steady growth will help to minimise any risks. Rapid growth may result in reduced quality and lost sales. For some companies, it’s preferable to remain small and excel in quality rather than expand and lose what you represent.
Unpredictable growth
Rapid growth in some sectors is more sustainable than in others. If you have a company that has low costs, you may be able to sustain rapid growth without your costs becoming unmanageable. For some businesses, growth requires increased investment in expensive raw materials and other expenditure. Although this may be feasible for some trades, a subsequent drop in demand may leave a company with too many employees, excess stock on hand, or a surplus of raw materials. This will ultimately have a negative impact on cash flow that could lead to problems with viability. Careful risk management is required for growth, especially if it’s rapid.
Although growth is positive for a company, it has to be managed carefully to avoid problems. If you would like to discuss how to manage growth within your company, why not arrange for an informal chat with us without any obligation?