In the world of business, many people assume that big always means good. A bigger business is frequently viewed as being better than a smaller one, and big growth is a goal that’s often prioritised ahead of slower, steadier business development.

Growth is an understandably important aspect of any business. Without growth, it’s impossible for any business to develop and increase its revenues. But growth isn’t a completely good thing – in many cases, too much growth can hurt your business.

Rapid growth can make it difficult for your business to fulfil orders, bringing its cash flow to a standstill. It can also put pressure on your staff, requiring your business to hire and train additional staff members, often on extremely short notice.

If your business works well because it focuses highly on quality, rapid growth could also cause it to lose its key selling point by transitioning into a quantity over quality approach to production.

These situations might not sound like something the future has in store for you and your business, but they’re all realistic and surprisingly common. When you view fast growth as a priority, the outcome might not always be positive.

In this guide, we’ll look at how growing your business too fast can negatively affect its cash flow, potentially leading to serious financial solvency problems that can hurt your business.

Is growth always predictable?

The most desirable form of growth for business owners and investors alike is steady growth. Companies that grow at a steady pace are known as “growth stocks” and sell at a premium on the stock market due to their steady, predictable returns.

When your company grows at a steady rate every month, it becomes easy to predict how much you’ll earn – and how many orders you’ll need to fulfil – as the next week or month approaches. The stability of growth makes expanding your business easy.

But what would happen if your business started growing unpredictably? Since most businesses can’t scale to a limitless extent very quickly, rapid growth can paralyse a growing company at the exact moment it needs to be able to respond to new demand.

Say, for example, you own a service company. If your order volume doubles within a week, your existing staff might need additional help. This can lead to you hiring new employees and contractors, often before you’re paid for your services.

In this case, growth can create a cash flow issue by increasing your company’s costs before increasing its revenue. Double or triple this rate of growth and your company can quickly find itself spending more money than it has to fulfil upcoming orders.

Growth is best when it’s steady. It doesn’t necessarily have to be slow – growth can be fast and steady – but it needs to be steady. If your business can’t respond to rapid growth easily, expanding too quickly could hurt it instead of helping it.

Growth often means debt

If your business is doing well, it’s understandable that you might want it to grow. A successful business can, after all, deliver even better results when it operates at an expanded scale.

When your company focuses on short-term growth, it usually comes hand in hand with debt. Borrowing money allows your company to invest in staff, equipment and marketing without having to wait for more cash to flow into the business.

If your business has effective risk management and a business model that allows for continuous, steady growth, this can be a great thing. Your business scales and your increased income allows you to repay your debt without any issues.

However, many factors of your business that seem like non-issues at a small scale can develop into greater issues as your business grows. A small decline in income could be all it takes to put your business in a tough financial position.

One missed payment from an important customer or a failure of the equipment your business purchased to fuel its expansion is often all it takes to put your business into a cash flow crisis, causing it to fall behind on debt payments and become insolvent.

Businesses can grow at different rates, and it’s often best to control your company’s growth in order to avoid cash flow issues. Take it slow and avoid growing too fast – your company’s balance sheet will thank you for it.

Can you scale and retain quality?

Does your business rely on quality in order to sell its product or service? Quality is often incompatible with mass production – a fact that’s attested to by the number of handmade products that top their categories in terms of quality.

If your product or service sells because of its attention to detail, growing your sales might not be possible without sacrificing quality. Affect quality too much and your business could find itself without the large audience of customers it once had.

Sometimes, expanding a business by increasing its output isn’t the best way to grow and develop. If quality is your company’s focus, improving its quality is often a much better approach that provides less risky growth.

Not all business models are built to scale, and trying to scale a business that clearly isn’t designed for rapid growth could lead to your company losing its audience and its reputation for high quality products and services.

If quality is your selling point, be very careful about compromising it. Scaling your business could succeed in the short term, but the combination of debt used to fuel growth and declining sales could severely hurt your business in the future.

Is your business growing too quickly?

Has your business expanded rapidly over the past year? If your company is growing rapidly, it’s easy to ignore the common warning signs of insolvency and focus on the positive aspects of growth.

In order to prevent your business from running into a difficult financial position, it’s important to make sure your growth is financially sustainable. A financial review is often all it takes to spot potential problems before they grow too big to fix.

Growth is a temptation for any business – after all, growth means income. Take the time to make sure your company’s growth is steady and controllable so that you’re protected against cash flow issues that could affect your business in the future.

If you have questions or want to discuss your current cashflow challenges, call our team on 0808 196 8676.