If there’s one thing most small business owners dream of it’s business growth. And business growth is definitely a good thing. It provides validation for your ideas and hard work, as well as providing more revenue (and hopefully more profit). However, there is such a thing as a business growing too fast.

When a business is growing out of control, growth gets in the way of running the business effectively and jeopardises the long-term health of the business. So how do you know that your business is growing too fast? As a small business owner, you should be on the lookout for these warning signs:

You have cash flow problems;
You are concentrating on turnover instead of margin;
You don’t have the time (or staff don’t have the time) to follow up good opportunities;
You don’t have the time to keep track of critical financial information to support key decisions
Unhappy customers and complaints are increasing;
Your employees are stressed, working longer hours, or leaving;
You don’t have the time to focus on strategy.

For business growth to be successful, it needs to be sustainable. If your business grows too quickly, you could experience financial, legal or staffing problems.

Cash flow pressure

As a business grows, greater cash reserves are needed for staff, increased operational costs and production costs. If the business grows rapidly, and the growth is mostly unplanned, there is a risk of overtrading by not having enough working capital (cash for day-to-day expenses) to fulfil the expanding orders.

How do you avoid running into cash flow problems? There are key measures that fast growth businesses should be checking on a regular basis to make sure they are in a sound cash position (you can read our article on cash flow drivers here). There are also a number of strategies you can employ for dealing with short-term cash shortfalls:

Collecting outstanding debts (read our article on debtor management here)
Reducing costs and overheads to the bare essentials
Increasing prices
Negotiating better payment terms with suppliers
Negotiating better payment terms with customers eg. offering discounts for prompt payment or insisting on payments by instalment
Identifying any non-core business assets that can be sold
Borrowing money by refinancing or organising an overdraft
Using factoring or invoice discounting services

To improve your cash flow in the longer term, your business will need to better manage its cash, particularly if you are planning further expansion. By monitoring and forecasting your cash inflows and outflows, you can better predict cash flow shortfalls and organise funding ahead of time if necessary. With adequate working capital in order, you’ll then have more time to manage other aspects of your expanding business.

Putting the brakes on

For many entrepreneurs, the idea of saying no to work sounds completely crazy. It might seem counter-intuitive to turn down opportunities at the time but it is essential to reign in your growth to ensure a sustainable journey in the long run.

Further help:

We understand that small business owners enjoy a hands-on approach when it comes to running their business, but if cash flow is a growing concern, it may be time to speak to a professional advisor to help get your finances on track.

If you’d like to discuss your growing business with one our financial management experts, please contact us on 07 3023 4800 or at mail@marshpartners.com.au

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