Yes. we have heard big conglomerates like Unilever, UAC, WAPCO etc., Struggle under the weight of high cost of business expansion and growth. It’s even more difficult for small businesses that do not have the right market plan, you need to get a hold of this write-up.

THE desire to grow our businesses to the next level should not mask or ignore the flip side of the coin that suggests that there are not just positive consequences of growth. Some of the pitfalls to watch out for are:

• Businesses may lose touch with customers and people in the business – staff. Suppliers, etc.
• The business may add costs at least as quickly as it adds income and so it becomes less profitable for more effort
• A huge amount of cash can be needed to fund growth and if the extra cash needed is not available, the business may end up with a cash flow crisis and go bust.

One of the downsides of the growth of business is the gradual shift from being customer and detail-centered to managing growth and cash inflow centered. Most small businesses know their customers, address their customers’ needs on a personal level and are more accommodating of personalized requests. As a business grows, and the customer base increases, providing customized service would not be as easy or profitable as providing standardized services. Staff management relationship dynamics change. In many small organizations, the management and staff are known to each other on person-to-person basis. This connection makes the staff feel a part of the organization and this will cause them to bend backwards to accommodate demands the company makes on them. As the company grows, this relationship is eroded and each staff merely become a faceless number in the personnel department.

The business growth puts additional stress on the company’s costs, new recruitments, increase in raw materials, purchase of space, space utilization become critical, and distribution route increase the ventures costs. If the investments made are not fully utilized, they become a liability on the company. An example: if you move from one room to a whole building because of anticipated growth and, the growth realized only warrants two rooms, the additional rooms available in the building will act as a drainer on the company’s funds.

A huge amount of cash can be needed to fund growth and if the extra cash needed is not available, the business may end up with a cash flow crisis and go bust. If all the available cash the company has is being invested in the growth plan, should the cash inflow not start almost immediately to inject liquidity into the business, the company may reach a point where it has no cash to continue the business.

Some of the things we could do as entrepreneurs to mitigate such growth risks and exposure are:

Managing people

We must conduct staff audits to find out the following: the current staff employed, their qualifications and experiences, their relevance to the emerging venture and means by which they can be trained to improve their effectiveness and the ventures productivity. Audit must also be conducted on suppliers to make sure the deals you are getting are still deals and that negotiations with potential suppliers are set in motion in case the current suppliers default or fold up. Customer audit must also be conducted, defaulting customers must be tagged as such, credit facilities revisited and loyal customers noted for rewards or special deals.

Review of management structure

Our management structure as we grow and increase in number should reflect channels of easy communication and this is best driven by the flat organizational structure where there are as many channels to the top level as possible.

Predicting funding needs

We need to do serious arithmetic to figure out on the onset of the growth/expansion program the funding needs we require so we do not get stuck and cash-strapped midway through our expansion plan. It is important to identify the likely effects and how to mitigate the effects of the pull on finances from current areas to new uses, in many cases it is best to use external funds to grow in order not to disrupt current business activities.

Keeping a close eye on the money cycle

Try as much as possible to get customers to pay for goods in advance and utilize these funds for the much needed working capital in a growing venture. On the other hand, utilize all your credit lines to the maximum and in cases where this is limited, having numerous suppliers may improve overall credit lines

Cutting costs that are no more relevant

As we grow, we should keep our eyes on the key costs, especially costs such as human resource, communication, marketing etc. Reliance on information technology is critical to keep information updated and relevant at a lower cost, thus improving efficiency.

Keeping the cash coming in faster than expenditure

We should leverage on our increase purchase from suppliers and ask for better payment terms and credit facilities

Knowing when to stop the growth and stabilizing

It is important that the indices of your growth are defined and that ways to measure your progress and track whether your growth plans are on course.

TAKE HOME

All resources of the ventures have to be utilized to the maximum, such as buildings, staff, vehicles etc., to maximize human resources, use work shifts with added financial benefits as a compensations, multi-task staff and hire multipurpose staff, increase staff portfolio instead of hiring new staff. All underutilized investments must be divested from immediately.