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When a company’s leadership engages in strategic planning, growing the business is typically at the top of the agenda. This is as it should be — ambition is part and parcel of being a successful business owner. What’s more, in many industries, failing to grow could leave the company at the mercy of competitors.
However, unbridled growth can be a dangerous thing. A business that expands too quickly can soon run out of working capital. And the very leaders who pushed the business to grow beyond its means might find themselves spread too thin and burned out.
That’s why, as your company lays out its strategic plans for the coming year(s), it’s important to focus on manageable growth.
Among the biggest challenges that many “high-growth” businesses face is finding enough financing for their expansion plans. Their owners often think, “If we want to double sales, we’ve got to double assets.” Buying equipment, hardware, software, raw materials and other assets usually requires debt or equity financing — which can be good for a lender but perilous for a borrower.
Overzealous asset acquisition strategies can cause repayment problems if cash flow projections fall short. There’s often a delay between:
The faster the growth, the bigger the gap. Businesses typically fund the shortfall with a credit line. And as they take on more and more debt, loan repayments can eventually consume most or even all the company’s cash flows.
It’s easy to get swept up in the whirlwind of rapid growth, but it’s not inevitable. You and your leadership team can watch for common warning signs that you may be at risk of becoming a victim of your own success. These include:
Make no mistake: growing your business is an important and, in many cases, necessary goal. But if you don’t manage that growth, it could manage you — into a crisis. Contact Doeren Mayhew’s CPAs and advisors today for help building reasonable financial objectives into your strategic planning process.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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