Beth and I are finishing up a class we are teaching on business planning. The last topic of the course is growth or more specifically, planned growth. While the word growth may sound wonderful after the agony small businesses have suffered during this economic downturn, uncontrolled growth can bring disaster. There are three main problems uncontrolled growth can cause:
Cash flow is the most frequent problem that occurs if a small business does not plan and control its growth. More sales mean more cost of goods sold which means more purchasing which means more money to be paid out for purchases. How are you going to fund your growth? Can you arrange for extended terms from your suppliers now that you will be ordering larger quantities? Can you require a deposit from your new customers and use that money to fund your inventory costs? What is your relationship with your bank? Talk to your lender and see if the lending environment in your area will provide you with a line of credit to fund your growth.
The next issue growing businesses face is management. This usually occurs when another location is established. Make sure your existing operations are stable and well managed by someone else before you turn your attention to a new location. You will notice I said you. New locations should always be run by the owner or existing upper management. This will insure a continuation of the processes, procedures and philosophies that have made your business successful to date.
The final problem is maintaining quality. We have all witnessed what has happened with Toyota in the last month. It is debatable whether the company’s problems stem from poor management, greed or losing sight of what made them successful. Whatever the cause is, it is a lesson to be learned by all businesses. A company must stay focused on its core values and mission in order to succeed.
We all hope that growth is in the future for our own businesses and for our country. Just make sure your growth is planned.