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Don't let rapid growth destroy your business

Staff Report • Mar 5, 2007 at 11:21 AM

Wouldn't it be wonderful to double or triple your business this year? Just think how that additional capital would allow you to do all the things you've wanted to do both in your business and at your home. You might even be able to buy that hunting retreat you've been dreaming about.

It's great to dream. Having a goal that is a stretch is important, too. But as a reality check let me tell you that there are lots of bankruptcy files in every federal court in the United States documenting businesses which were forced into bankruptcy because of rapid expansion.

Don't get me wrong, rapid growth does not bring down every business. Those who prepare properly for it may experience stresses, but they can survive and prosper. What we need to consider are those issues that we must get ready for that will better ensure our survival in times of rapid expansion.

Here are some of the questions for which you need realistic answers to be able to handle rapid growth:

• Do you have or can you obtain the capital needed to fund growth?

Depending on the type business you are in, intense growth will require immediate capital to purchase raw materials or goods, expand capacity, hire more employees, add more distribution channels, provide storage, rent or buy more sales outlets and add communication equipment, to name only a few stresses to your funding base.

Not only do you need capital to expand, but you need to be able to pay it back to the bank or replenish you own account. Let's assume, for example, that the growth comes from a new customer who places large orders. You spend a great deal of your capital preparing those orders for shipment and the client strings payment out for 90 days. In the meantime there are more orders coming in. You thought you'd have your money from those sales in 10 days. If you've borrowed the capital to fund those sales you may eat up your profits by paying interest on the loans because of this slow-pay customer.

• Do you have the right management in place to direct the growth?

Most small business owners are hands-on people. They typically won't or can't turn over any part of the control of their business to anyone else. As a result, they work harder and longer to manage the growth until it gets away from them and as a consequence some aspect of the business suffers or collapses. If you can't delegate you can't survive rapid growth. If you don't have the right people to whom to delegate you won't survive either.

Finding the right managers to assist you is a must before you attempt to successfully cruise through any period of rapid growth.

• Do you have all the information you need to manage rapid growth?

I am amazed at the number of small business owners and managers who lack basic management information about their businesses. They may be able to tell you their bank balance and the number of employees they have, but they don't have a handle on even basic numbers like aged accounts receivable, work in progress, overtime hours, loan balances, cost of goods sold, waste or missing inventory, return on investment or customer purchase trends.

The one statement I find myself saying quite often to a client who wants to expand yet is currently struggling to manage what he already has, is: "If you are having trouble managing one store, do you think the answer lies in managing two?"

Be smart and plan ahead for rapid growth.

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