4 Downsides of Rapid Business GrowthPosted by Factor Funding Co. on May 21, 2015
When you started your business, you may have envisioned it growing to new heights and becoming extremely profitable. As ideal as your vision may seem now, in reality you could face disturbing pitfalls if your company grows too fast.
As difficult as it may be to fathom, fast growth can be just as challenging to handle as a slow start. If your business grows too quickly, you could be facing these unique dilemmas.
Insufficient Cash Flow
Even as you take on more clients, you may lack the cash you need to fill their orders. Without steady cash flow, your new customers will have to wait for their services or products until your existing clients pay their outstanding accounts receivable.
When you cannot afford to wait a month or longer to get started on your new clients' orders, you can factor out your existing customers' invoices and get cash your business needs now. Factoring will give you a significant portion of the money upfront without you having to put orders on hold and risk angering your customers.
Alternatively, you could misinterpret your business' sudden boom as a sign to start spending copiously. Many new business owners make this mistake and start buying material goods, taking vacations, and otherwise blowing through cash without saving for possible future crises.
If you do waste money that you need to pay future expenses like hiring and training more workers or ordering more inventory, you can raise the cash quickly by factoring your existing invoices. Factoring will help you salvage your bottom line and give you some revenue to put back in savings.
Increased Overhead Costs
As your business grows, so will your overhead costs. In no time, the cost of your necessities will become a burden if you fail to plan ahead for such circumstances.
Some of the overhead costs that could grow exponentially along with your company's rapid expansion include:
- Rent or mortgage payments: As your company grows, you may need to find more spacious accommodations. A bigger store or office space can be more expensive than what you are paying for now.
- Utilities: Bigger store or office space means that your utility costs will rise. You will need money on hand to meet these costs during the first few months of your rapid growth.
- Inventory: Taking on more customers will require that you have enough inventory on hand to provide great customer service and meet their needs. If your company grows too fast, you could find yourself without the supplies you need to keep up with your business' pace.
- Insurance: Your insurer may require you to take out a bigger policy to safeguard you in case of accidents, theft, and other uncontrollable circumstances. A bigger policy will cost more.
- Contractors and vendors: As your business grows, you may need to farm out work like filing taxes, figuring payroll, and keeping your books. To hire a CPA or bookkeeping firm, you must have enough money on hand to do so.
These increased expenses can be difficult to meet if your cash flow is not keeping pace with your growth. Your solution may be to secure financing through options like factoring.
Your handful of employees may have served well when your company was in just getting off the ground. When it grows rapidly, you will have to hire more workers to take care of your customers.
As with the other dilemmas that come with fast growth, you will have a difficult time hiring and training employees if your cash flow has yet to catch up with the rest of your business undertakings. You will need to find a way to raise the money you need, which can be done if you utilize factoring for this purpose.
A fast growing company can be more of a challenge than a blessing. These dilemmas can plague you if your business grows at a rate with which your cash flow cannot maintain.