Disaster Alert: The Dangers of Growing Your Business Too Fast Disaster Alert: The Dangers of Growing Your Business Too Fast When you are a new business owner, your primary goal is to break even as it opens the door to profits. You are at the point where you have customers who are paying for what you are offering on a regular basis. Your cash flows begin to register inflows. It’s an awesome feeling to steer your venture to profits. Profitability drives the next natural goal of the business: growth. The growth phase is one of the most exciting and most challenging phases of entrepreneurship. The prospects are looking up. You are establishing a footprint on the market. Customers are buzzing, and the sales numbers are incredible. Every business owner strives to develop her business quickly to realize its potential. Get ready to steer your business through an explosive phase that can make or break it. Take some time to understand the impact of rapid growth, and plan for it. Let us review some of the risks associated with rapid growth. "Ensure your operational plan is not affected by such glitches. Project your cash flows and prepare for the different scenarios." “All change is not growth, as all movement is not forward.” Ellen Glasgow, American Novelist Cash Flow Crunch Your business is getting bigger. There is an increase in revenues. On the other hand, the expenses also get bigger. You spend more on tools and equipment, software, inventory, and overheads among others. It becomes hard to track all your expenditure due to the sheer volume. This injects problems into your cash flows and one month of bad sales could deplete your disposable revenue. Similarly, failing to meet your short-term obligations such as payroll and rent can force you to shut down. You may face delays in collecting receivables. Ensure your operational plan is not affected by such glitches. Project your cash flows and prepare for the different scenarios. Make sure you can service essential expenditure even during a cash crunch by creating an emergency fund. Due to rapid growth, your expenditure may surpass your revenues. This is natural as your business prepares to deliver more and quickly. Strengthen your receivables collection department to minimize delays in revenue. It is unwise to have your cash flow dependent on one revenue source, so try diversifying your client base to minimize risk. It can be detrimental if your single big client fails you. Lack of Financial Groundwork It is time to minimize exposure to risk, which maximizes returns. Don’t take credit to drive growth. Taking a loan increases your business’ exposure to risk. There is a fine line between the interest you pay on the high-interest bank loan and the margins you make on your revenues. It is a ticking time bomb waiting to explode when your business hits a bump. If you are paying yourself a salary, it is critical developing a saving habit. Taking a piece of your profit and allocating it to your emergency fund empowers you to clear debts and reduce risk. If you are running the business from your private funds, saving money and paying off debts it even more important. It is an excellent way to ensure your business does not leave you broke. Putting money aside on both fronts will enable smooth transitions and survival of unexpected setbacks. Shore up reserves for your operational expenses. This empowers you to ride the bad waves. It will allow you to stay afloat in times when you are not making money. Having a rainy-day fund buys you time to re-strategize and get back to profitability. Usually, in such situations, buying time is all you need. You can employ professional help for more than just taxes. Strive to stay updated with the latest cash flows. This helps you track your expenses against sales on an ongoing basis. Risks of Operational Inefficiency Growing your sales is good for profit. However, it also requires you to do more and faster. A rapidly growing business stretches and bends the inner structures, which are usually rigid. Attention to detail decreases and sometimes quality may become a challenge. Rapid growth will force you to change the way you run things. A bigger workforce requires correspondingly strong leadership. The shift to the new systems and policies may not be as smooth. Pulling your people from the nitty-gritty to leadership roles might negatively affect productivity. Similarly, small flaws in management will be amplified. Be ready to address hiccups arising from those operational changes. "Growing your sales is good for profit. However, it also requires you to do more and faster." Hiring the Wrong People A vibrant workforce is essential to drive rapid growth. Hiring a large number of people in a short time makes it hard to evaluate everyone properly. Your biggest challenge is to find the perfect person for the job. A rapidly growing business means heavier workloads than before. This reduces the time you put into issues such as employee welfare. Human resource management becomes a real thing. You will need teams to look after the human capital. This eats a more significant chunk of your budget. In addition, with a big staff, you do not always get an exact match for the position. At times, you are forced to expedite placements to ensure production does not collapse. Don’t fall into the trap of hiring inadequate people. It will lead to an organizational mess later on. Cultivate a company culture that keeps your workforce motivated. Make it clear on what is the acceptable policy. Your new staff may not tick all the boxes in your requirements. Use your judgment to determine who is most useful to your business now. "Try to keep a close tab on customer feedback. Follow up quickly when the levels of harmful feedback escalate." Reduction of Customer Service In fast-growing businesses, the demand for everything rises. This includes your time. You cannot put as much time and energy as before into projects. Success becomes a double-edged sword. The demand is so high that you cannot afford to pay individualized attention to all the projects. Similarly, you might be forced to spend less time even on your special accounts. This lack of attention also affects your long-term relationships with clients, colleagues and business partners. In addition, prepare for a drop in service quality when you delegate departments such as customer care. Plan to take remedial action in specific circumstances. Poor customer care leads to a decline in business. The link is that customers feel disconnected from your company and may start giving negative ratings and reviews or even jump ship. Try to keep a close tab on customer feedback. Follow up quickly when the levels of harmful feedback escalate. There is a good chance you can do something internally to resolve the issues. An increase in customer complaints signals a bottleneck in your production chain. Attend to it quickly to avoid losing repeat customers. Ensure your customer care teams are re-trained and motivated to deliver on your goals. Be on the lookout for adverse ratings. This is especially true in the digital age. Have a policy that outlines how to respond to negative feedback on all platforms. For instance, a proactive reputation management strategy will help you keep your online world free of negative content. It also ensures quick and professional responses to bad press. Conclusion A primary goal of every business is profit. Sometimes it makes sense to sacrifice growth to safeguard profits. Rapid growth involves successfully managing high-risk situations. It puts the business under intense pressure from multiple angles. There are steps you can take to ensure your business handles rapid growth successfully. These include planning for expansion capital, preparing to scale up operations on all fronts, engaging the right talent and sticking to financial plans among others. Ensure that your workforce is aligned to your business goals. This creates a harmony that lets you do business faster. On the positive side, it keeps the employees motivated to deliver beyond expectations. Rapid growth is a thrilling phase of your business. It promises lucrative returns. Elevate your leadership and learn to ride the rough waves that come with it. Michelle Laurey Michelle Laurey is a passionate wordsmith always interested in ways which can help individuals reach their full potential in life. She enjoys producing stories on entrepreneurship, productivity, lifestyle and relationships.