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The
Danger of Growing Too Quickly
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Determine
whether your company is on a course leading to disaster. Here are some
tell-tale signs that your company is growing much too soon. by
Isabel M. Isidro
PowerHomebiz Managing
Editor
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Some small businesses are faced with the
"too much, too soon" syndrome, where the business grows
too quickly for its founders to handle.
While it is natural for a well-planned and well-executed
new business to grow, some small companies are allowed to grow too
quickly when management becomes flushed with early success.
While the founding entrepreneurs have built a
successful company, they have also created a challenge beyond
their experience and capability.
Impatient owners might launch new product lines or
services, expand into unfamiliar fields, hire too many employees,
acquire expensive facilities, begin plans for acquisitions or an
initial public offering -- without the necessary experience,
management skills, capital and support. As a result, cash flow
shortages occurs, maybe subtle at first, but expenses will begin
to exceed revenues at an increasing pace with each new month of
growth. The company
then begins to hemorrhage.
Here
are some indications that a company’s growth is too rapid.
- The
decision to expand is based more on impulse
than on sound
financial evaluation, market studies or economic analysis.
Oftentimes, the expansions are a result of the owner’s whim
and personal satisfaction rather than a real understanding of
the company’s capabilities.
As a result, impetuous companies charge ahead and seek
to take advantage of market opportunities even if they lack
the necessary capital for the project.
The undercapitalization of projects soon become their
undoing.
- Loans
acquired for expansion are so large
that servicing them
consumes the company’s earlier established cash flow.
In addition, some growing companies experience problems
with their account receivable management, despite a
significant increase in sales. The financial distress could
then bleed the company dry.
- The
owner and other principals find themselves growing out of
touch with the key employees
on whom they must rely.
Worse, these companies continue to put up with some
unproductive division, asset or person putting a strain on the
overall profitability of the company.
Get rid of the deadwoods!
- Mounting
overhead
begins pinching over vital expenses.
- Bureaucracy
rears its head
in the form of more memos, meetings, and buck
passing, further compounded by a defective monitoring and
information systems. Growing companies must be able to obtain
information (internal costs and budget, competition, inventory
controls, cash flow, sales growth, among others) in a timely,
organized and efficient manner.
- Customer
complaints increase
and satisfactory servicing becomes a
problem. Oftentimes,
in pursuit of greater success, companies grow quickly that
their back-end support system, delivery and order fulfillment
sections fail to catch up.
- Over
dependence on a key customer, supplier, lender, or contract
is
another pitfall for growing companies.
Small companies should try to diversify their product
lines, geographic trading areas, distribution channels and
targeted markets.
About the Author:
Isabel
Isidro
is the editor of Power
HomeBiz Guides.
Read her blog at
PowerHomeBiz Small
and Home Business Blog
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