Business growth is something that many company directors will work for years to achieve. It often signals success, higher profits, and better recognition amongst your customer/client base and competitors. However, business growth is not without its dangers. Expanding too quickly and without putting good foundational habits in place can expose your business to some serious risks.
If blindly ignored, the risks of business growth can amount to serious problems and leave you attempting to rescue your business as opposed to celebrating its successes. With this in mind, we have set out seven of the most common risks of business growth and how you can look ahead and put in place practical mitigating steps to overcome them.
1. Cash Flow Issues
When a business starts to grow and revenue targets are continually smashed, it’s easy to assume that your business is in a solid financial position. While increased revenue is undoubtedly a positive thing, there are some important considerations to make if you’re bringing more money in than usual.
In fact, sustained business growth will typically bring in higher upfront costs. From the need for larger premises to increased stock, your cash flow can quickly become stretched as you look to meet higher demand. This needs to be balanced carefully, as it’s easy to quickly become asset-rich but cash poor, which could result in challenges when it comes to covering payments to creditors and day-to-day expenses.
Solution: To overcome this possible implication of business growth, robust cash flow management is key. Plan not just for the now, but for the future too. If you do find that pressures mount more quickly than you were anticipating, seeking advice early is then key to ensuring growth doesn’t tip into crisis. A formal rescue procedure may be necessary in these circumstances to give you breathing space from creditor action while a structured and more sustainable recovery-to-growth plan is put in place.
2. Poor Quality
When it comes to risks of business growth that can have the most significant impact on the outside perception of your business, possible quality issues are incredibly common. A large influx of new customers will naturally put pressure on your existing systems and production processes. Without adequate processes in place, it’s easy for standards to slip or for staff to simply be unable to manage the same service levels. While one or two slip-ups are natural for any business finding its feet when growing, consistent quality issues can quickly undo the hard work that created growth in the first place.
Solution: The risk of poor quality as a result of business growth highlights the need to have a proper growth plan in place at all times. While not all types of growth can be planned for, where possible, you should invest in scalable systems from the outset. If reputational damage has already occurred, take time to review processes and practices and consider some level of operational restructuring if necessary.
3. Operational Inefficiencies
Another one of the most common risks of business growth is operational inefficiency, as processes that may work best for smaller businesses can quickly buckle under the pressure of increased demand. For example, outdated software, manual processes, and poorly coordinated supply chains can all cause deadlines to be missed and overheads to rise in a larger business environment. These small inefficiencies that have previously gone unnoticed can quickly become more serious and potentially costly issues in the long run.
Solution: The risk of operational inefficiency highlights the need to be flexible and reflective when undergoing a period of business growth. Avoid becoming complacent and instead make an effort to conduct regular reviews of business performance as things start to change. This process will give you the chance to reflect and spot potential inefficiencies before they escalate. For a valuable external perspective, it may also be worth having an Independent Business Review (IBR) carried out.
4. Overstretched Resources
Your staff are often your most valuable business asset, and the reason why growth is ever possible in the first place. However, unsustainable growth can often come at the expense of their well-being and productivity. A team operating at full capacity without additional support can only sustain its performance for so long before issues start to appear and customer service levels slip.
Solution: Avoiding overstretching resources undoubtedly requires forward planning. If growth is your long-term goal, supplement it with an investment in additional staff or expertise before increased demand becomes simply unmanageable. As a company director, you should also aim to delegate where possible to ensure that key decisions can still be made with a clear head.
5. Unsustainable Hiring Practices
However, the temptation to hire quickly in response to growth and overstretched resources can be a risk in itself. While more staff can ease immediate pressures and provide valuable new insights, a growing payroll can quickly become unsustainable and be a significant cost burden. Hiring simply to fill the office can also lead to poorly defined job roles and duplication of responsibilities, ultimately doing nothing to contribute to any sense of long-term stability.
Solution: To overcome this risk of business growth, ensure that all staff expansion plans are guided by a clear business growth plan rather than short-term impulse thinking. You could also consider flexible arrangements, such as temporary contracts or outsourced staff, to manage fluctuating demand. This approach will give you the flexibility you need to embrace growth while equally ensuring you are not overcommitting to wage costs.
6. Core Value Dilution
It’s important that business growth plans are always guided by the core values that helped you become successful in the first place. However, the values and culture that established your reputation can be difficult to maintain at scale. Lots of new staff, geographical expansion, and rushed training can leave stakeholders, internal and external, unsure of what the business truly stands for. Over time, this dilution of values can threaten brand identity and customer loyalty.
Solution: Simply being aware that you could lose sight of your core values is key when growing. Revisit your values with every change to the business, whether that’s when new staff are hired or when new premises are opened. Equally, if you think you have already drifted far from your roots, don’t be afraid to take the time to reflect and bring things back to basics.
7. Profit Instability
The last but perhaps most serious risk of business growth is profit instability. Revenue growth does not always translate into profitability; in fact, profit margins can shrink as costs increase and expansion expenses build. You could find yourself in a position where you are making more money than ever before, but with more fluctuation in your bottom line. This instability can make it very difficult to plan for the future with confidence.
Solution: To keep profit margins as balanced as possible, do not be afraid to regularly review pricing structures and overheads to keep profitability at the heart of your business growth. You may need to make some difficult decisions to separate the viable elements of the business from those limiting profitability, but it is these kinds of strong actions that will ensure long-term success.
Business growth is undoubtedly exciting, but you shouldn’t be afraid to ask for help if you are struggling to manage the implications and risks that come with it. At Ballard Business Recovery, our experts can help you navigate the challenges of business growth and provide a valuable external perspective to help guide your business towards long-term success.
Whether you are just setting out on putting together a business growth plan or have overexpanded and need some help with formal next steps, simply get in touch with us today for transparent advice.
