Business growth requires careful planning

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Terry Sage of Trades Coaching New Zealand says by all means grow, and grow large — but plan your growth path carefully.

Humour me for a half a minute and answer some rather simplistic questions.

Who started their business and hoped it would grow? Who has wished the growth would come faster? Who grew without doing much?

Daft questions as, for most, the answer is an obvious yes. So how about this for another daft one — who has grown way too fast that it hurts?

By hurts, I mean the company not your knees or elbows — well, maybe if the company has grown that quickly you will probably be hurting physically too.

So is growing a bad thing? No, not if it’s a controlled growth. But when it’s a ballistic growth and totally out of control then, yes, it’s a bad thing.

I often get strange looks when I talk to clients about not trying to grow too quickly — actually, that’s not the only reason I get strange looks but let’s stick to the topic. 

Why is it bad? Because it puts an enormous amount of stress and pressure on both the company and the owner.

Every company has an infrastructure and a foundation, and both of these have to grow with the overall growth of the company.

Quite often with massive growth they get left behind because the poor owner is committed 150% on doing the work, and they don’t have any time left to work on the business itself.

The biggest issue with exponential growth is the lack of funds — which sounds weird when you think that if you’re growing then there’s lots of work, which should mean higher income levels too.

However, growth costs money, lots of money and, more often than not, big growth actually strangles the lifeblood of a company — namely cashflow.

Every expense goes through the roof, and not just the obvious such as materials and wages, but telephone, fuel, office, insurance, R&M payments — in fact, pretty much everything.

If you pay some of these weekly then you have to finance more while you’re waiting for the income to come in.

Then you get a slow payer or you’re so busy that you’re slow in sending out invoices, and you have to find even more dollars to finance your bills which are way bigger than when you were a small company.

And the whirlpool just gets bigger and faster. But hey, next week you’ll get paid a massive $73,585 all in one go, cool.

But half of it disappears in minutes to cover the overdraft, another half goes on the pile of creditors you have hidden in the draw, and you are desperately looking for the third half to fund next week’s job and tomorrow’s wages. Talk about stress and pressure!

Let me tell you a little secret that really adds to the cashflow pressure. It’s the monthly payments on the four-month-old Ranger Raptor and the 300hp jetski, the replacement trail bike that you didn’t need and the latest E mountain bike. Yep, I’ve seen it all.

For some reason, the kiwi business owner seems to think it’s a legal requirement that a shareholder has to drive a V8 Comi, and that it’s their responsibility to win the “toys” race.

The conclusion to all this is that growth is great, but make sure it’s controlled. Remember that cashflow is king, and you need to have money behind you to grow. And (the biggest and) don’t buy the toys until you can afford them, as outgoing finance kills cashflow.

Just to put that into perspective, I am helping close down a successful company because their income temporarily dropped by over half as they were in between big jobs.

Their weekly finance payments were more than two thirds of the new income levels, hence there was nothing left to cover any other bills.

By all means grow, and grow large — but plan your growth path carefully.