A business that experiences sudden growth often finds itself in a paradox. Growth is often desirable, but it can also cause many changes in business operations, which must be controlled if that success is to continue in the long term.
Rapid growth in particular requires careful planning, the right financing and greater cash flow to ensure that a business can meet its increasing financial obligations such as operational costs, supplies and payroll. The protocol for controlling a business’s growth in its marketplace may be categorized into the following areas:
The ultimate objective of a company’s growth strategy should be to become more profitable, rather than growing simply for the sake of growing. This strategy must effectively assess the company’s risks and opportunities, especially if growth is likely to occur quickly. The strategy should also be based on a variety of information sources, including the specific market, overall economy, competitors, distribution channels, demographics and internal resources.
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The growth strategy should determine if the company has the necessary capital to finance growth. It should consider the company’s cash flow situation, including the rate at which receivables are being collected and the ability of the inventory to meet the needs of the current growth rate. Production line efficiency is another area that can determine the best growth strategy. Unexpected growth may require the liquidation of assets to raise capital in the event of unexpected growth. A growing company also requires a management team with experience in handling growth.
Strong budgeting is always important for a business, since it provides a system of checks and balances in the way the business spends its money. However, wasteful spending is most likely to occur when the company is growing rapidly because it’s bringing in more money. Business owners will need to work hard to secure employee buy-in for a budget during a successful period.
The first step in developing a budget is to analyze the cash inflow and outflow to estimate future cash requirements. You can then use this information to identify changes that can improve your current financial situation. Careful planning can also help you streamline operating costs such as equipment leasing, property rentals and office supplies. A budget requires specific goals to cut costs effectively, and someone must be held accountable for ensuring the business meets those goals.
A sensible budget is also helpful for ensuring that lenders will provide your business with the financing it needs during a period of rapid growth. Financial institutions generally consider high-growth companies to a risky investment, so it’s especially important for these companies to exercise fiscal responsibility.
An analysis of a company’s overall finances is important for controlling its growth, usually by obtaining additional financing or refinancing an existing loan. A rapidly growing company will often refinance to reduce monthly payments by increasing the term of the loan. A company’s financial analysis may be divided into an examination of its payables and receivables.
The most important aspect of payables is ensuring that a sale isn't considered a sale until the money is actually in the bank. Another important practice is coordinating deliveries with reorders, commonly known as the “just-in-time” method of manufacturing. Additional considerations in determining how a business handles its payables include the credit a company is able to obtain from its suppliers and the interest rate on that credit.
A company’s credit policy is a primary factor in assessing its handling of receivables, especially the time needed to collect on delinquent accounts. A company’s collection time may need to be reduced if its credit policy is affecting its cash flow. Other important credit practices include performing credit checks on clients and providing clear payment terms.
A company experiencing rapid growth should continually evaluate its marketing plan to eliminate tactics that are less effective. This process can be challenging because a growing company typically uses multiple marketing tactics simultaneously. The use of key performance metrics can help identify the best choices by comparing specific results between tactics.