Can a business grow too fast?
Most businesses hope to grow. They
consider themselves successful if growth is taking place, and the faster the
growth the better. Can too much business growth be bad for a company? It can be
if the growth is not adequately planned.
For example, an established company
that doubles its sales volume in a year may find itself strapped for cash, for
working space, and for trained personnel.
For most established companies, a
12% to 15% annual growth rate would probably be manageable. The ideal growth
rate for your company depends on the unique circumstances in your firm and
industry.
A new company (starting with zero
sales) must obviously grow more rapidly than an established one. Some new
businesses may double their sales each year for the first five years or so
before reaching the level where a 15% annual rate is healthy.
Rapid growth often requires more
inventory and more space. And it may require money to fund additional
work-in-process or accounts receivable. Who will fund the growth? A 15% growth
rate can probably be funded by retained earnings. A more rapid rate may require
an injection of outside capital. If the owners can't provide the money, will it
be the suppliers (increasing the accounts payable) or a banker (new short-term
debt)?
Every business should have a
written business plan with its growth projections clearly identified. The plan
should include provisions for the finances, space, equipment, and personnel
that such growth will require.
Your company's growth should be
both workable and profitable. Please contact us for assistance with your
business planning.