The risks of growing your business too quickly

It’s a risk all business owners should keep in mind during periods of early-stage growth. While ambitious entrepreneurs will always be looking for ways to expand to deal with growing demand, it can be possible for them to overstretch their business – and themselves – before being ready. This is known as premature scaling.

How quickly should a company grow?

When sales start to come in and clients begin queuing up, particularly after two years of struggling through the pandemic, it’s only natural to examine how you can build on your early success to maximise profits.

Yet going too fast, too soon can bring big problems. Overtrading in business is when you accept new work without having the resources to complete it. If you’re stretched too thinly, the quality of the goods or services you provide could suffer, leading to a loss of confidence among existing customers and difficulty in acquiring new ones. If the problems aren’t addressed, it can pose an existential threat to your business.

What are the ramifications for a company becoming too big?

Ian Duffew, Business Growth Advisor at Elephants Child, highlights some of the key issues you might experience if your business is expanding too quickly:

• Quality issues increase due to over-commitment and additional time pressures, meaning your usually high standards are no longer being met
• Operational cost increases as a result of redoing work and fixing errors
• Customer complaints increase because of under-performance and late delivery
• Planning turns to firefighting as you respond to emerging issues and customer dissatisfaction
• Processes become inefficient because they weren’t set up for this level of volume
• Profit levels decrease as clients question value for money, cancel future orders and refuse to pay for corrective actions
• Team morale suffers due to employees feeling the pressure, negativity and sense of failure
• Repeated mistakes occur as a result of being too busy to learn lessons and implement improvements

What are the effects of business growth?

While over-expansion is clearly a risk, not growing at all is possibly even worse. It’s therefore vital to know when to invest in growth and on which part of the business you should focus for maximum impact.

This requires a true understanding of the current and future marketplace. Sometimes, an SME might require funding to support that growth, in which case understanding and assessing your financing options can help you make a better decision. In all cases, advice can help.

The two main options for financing can be broadly split into debt or equity. Banks that provide loans to SMEs, especially those in the early stages of their development, can insist on personal guarantees on the loans. Other debt options exist in the alternative finance market, including peer-to-peer lenders such as Funding Circle.

How do I achieve a work-life balance in a growing business?

Expanding too fast can also have an impact on your own mental and physical health. Running a business can be stressful at the best of times, but that pressure becomes even greater if you’re trying to do too much – a trend that has been accelerated by COVID-19. A recent survey of 1,000 business owners by the Federation of Small Businesses found that 34% said their mental health had declined over the course of the pandemic.¹

One way to avoid personal burnout and some of the risks to your business of expanding too fast is to concentrate on achieving a strong work-life balance. Simple decisions such as designating at least one fixed day a week to step away completely from the business, and having hobbies outside of work, can make all the difference when seeking this balance.

“Be realistic and accept that running a business takes a huge amount of your time and energy, especially in the early days,” says Ian. With that in mind, he suggests tactics such as identifying a time when you’ll stop working each day, planning and taking your holidays, and enjoying activities that take you away from thinking about the business. Perhaps most important is always ensuring you find time for friends and family. “Prioritise the important people in your life,” he says, “and make room for them in your busy schedule.”

Ask for advice

If you’re thinking of growing your business, why not speak to us about the different options available to help you do this? We often work alongside business-growth advisers to assist you in planning for the future, taking into account both your personal and business goals.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.

Sources:

¹ One in Three Business Owners Suffer Covid-Linked Mental Health Decline, New Study Finds, Federation of Small Businesses, 9 May 2022, figures from a survey of 1,000 business owners

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