Managing a Small Business
Managing Growth - Ask Bob

Ask Bob About Managing Growth

?When is fast growth too fast?

Sustainable fast growth must be “controlled” fast growth. No matter how fast you are growing, you need to have time to keep your business plan up to date. Your projected cash flow should allow for enough room in your credit line at the bank to allow for unforeseen or underestimated expenses. Your profit and loss projections should be sufficiently up to date so that it accurately represents your current and projected cost structure. You need to feel relatively comfortable about the ability of your key managers. You should also feel great about the quality of your product and service. And perhaps most of all, you should not feel “burned out.”

?Does a fast-growth business require a different type of bank?

Fast-growth businesses inherently involve more risk. Some small, local, or conservative banks may not see an upside opportunity in financing your growth. If your business hits its targets, your lending needs may outpace your bank’s legal lending limits. When you approach a bank, find out what types of businesses it typically finances. If its clientele has been restricted to the local funeral parlor, barber, and corner grocery store, it won’t be your best bet if you are seeking financing for a high-flying, international concern manufacturing a highly technical product.

?What problems beset fast-growth firms?

Fast-growth firms are likely to encounter all of the problems less growth-oriented firms experience, but they tend to run deeper and happen more frequently and simultaneously. Loss of control is often at the root of these problems. Problems might strike companywide if a firm experiences a cash shortage because of poor cash forecasting. Or problems might be limited to one or two functional areas if a manager becomes overworked, is in over his or her head, or is unable to keep up the pace.

?What should I do if I feel growth is “out of control”?

First, try to get cash flow under control, because without cash or credit, your options are severely limited. Project cash flow out carefully for a twelve-month period. Make sure your profit and loss projections for the next year or so are up to date. Compare your profit margins to competitors—are they in line? Evaluate the direction your business is headed in and discuss it with your managers. Is your direction in line with your business strategy? Is it in sync with your current strengths and weaknesses. Evaluate each functional area of your business and determine its ability to handle future growth. Fast growth will amplify any weaknesses in your company—make sure each component of your organization is as strong as it can possibly be.