Can Your Business Grow Too Fast?
Controlled growth is the key to business success.

By Donna Craig

So, you made the decision, you had enough savings to get started and you hung your sign on the door.

Wow! You were able to bring a few customers with you, they told their friends and now the business is growing. Every quarter is a new record for sales and revenues. At the end of your first year in business, you have more employees than you thought there would be in five years. Congratulations! Yes, but …  

It may sound ludicrous, but your business can grow too fast. To a business owner it may sound like heaven to experience fast growth. But without controlled growth, there is a danger of losing the business altogether.

Does This Sound Familiar?
Your business struggles to meet delivery dates. You receive an average of three customer complaints a week. You’ve noticed quality slipping, but you don’t have time or personnel to troubleshoot the problem. You struggle every pay period to make payroll. Finally, you realize you have not worked fewer than 60 hours a week in months.

There are a few main reasons entrepreneurs think of starting a business: they want to be their own boss; they think they can make more money if they own the business; they enjoy the work of the business (their hobby) and want to make it a livelihood; they want freedom and control. Unfortunately for many, not enough effort goes into learning what it takes to be successful as a business owner. There are plenty of books and school courses on the subject, but let’s take a look at the essentials.

The “3 Ps” of a Successful Business
Product or service. You must undertake careful research to ensure your product or service has market viability. Are there enough customers to support a business like yours? What differentiates your business from your competitors?

Processes and procedures. How will you produce your product/service and deliver it to the market? What does quality control look like? Who are your vendors?

People. Who are your key personnel? What are the qualifications, specifications and responsibilities for each position? What is your hiring process? Do you have a hiring strategy so you know when to hire without putting a strain on the business? What training and development is needed? How will you pay employees? Will you offer benefits? Does your infrastructure include an accountant, attorney or business coach?

Even when the “3 Ps” are in place, there are still two significant reasons businesses fail: financial capital and organizational structure. If your business is undercapitalized and/or disorganized, you have a recipe for disaster. And consider this, disorganization can cause the lack of cash flow or vice versa. In his book, The E-Myth Revisited, Michael Gerber states the need for systems to be in place in order to establish control, structure and financial health. With the systems in place, business owners have a much higher chance of achieving the business and personal goals they had in mind when starting their businesses.

Some Systems Are Needed
Planning. As the saying goes, “If you don’t know where you want to go, any road will get you there.” Make sure your business is driven by a clear vision and strategy that is understood and supported by every person at every level. Your planning needs to include a long-term plan (3 to 5 years), a short-term plan (12 to 18 months), a marketing plan (how you will create awareness for your product/service) and a sales plan (how you will secure customers).

Results management. If you can’t measure it, you can’t manage it. Period. You need to know on a day-to-day basis how you are progressing toward your company’s vision. Put tracking systems in place to measure all key functions—daily, weekly, monthly and year-to-date. Every business has key numbers, statistics and ratios that tell the story of the business. The ones to watch are determined by the type of business, but they may include payroll, turnover, cost of goods sold, size of contracts, delivery time, customer retention and inventory turns.

Money management. You should know day-to-day, what you have, what you owe and what others owe you. Keep an eye on your financial health:

• Monitor basic financial statements every month. A smart business practice is to learn to read and understand your financial statements. If you are uncomfortable with reading them, get help.  Find a trusted advisor to teach you how.
• Monitor accounts payable and accounts receivable weekly. Some businesses look at these reports daily. The length of time between taking an order and getting paid can make or break your cash flow.
• Watch your bank balance closely. With Internet banking, this information is easily accessible.
• Payment terms can and should be negotiated. The longer you can keep your money and/or use other people’s money, the better.
• Developing and monitoring a budget is essential to controlled growth.
• Smart debt management can happen if you have a good working relationship with your banker.
• Do tax planning on a routine basis, not once a year. This takes expert planning knowledge and skills, and business owners usually don’t have the time it takes to stay abreast of all the changes in tax laws.

We all want business growth, but growth needs to be healthy and controlled. Through research, planning, management and follow-up, you can enjoy all the rewards of business ownership.

Donna Craig is principal of Leadership Resources, an Overland Park-based consulting firm. She can be reached at (913) 599-4511 or online at www.leadershipresourceskc.com.