Rapid Growth Could Kill Your Business

July 26, 2007

Everyone wants to have a fast growing business, but trying to grow too quickly could kill your company.  I’m not suggesting  that you shouldn’t try to grow quickly, just don’t go over the top.  A few years ago, I tried to grow my business too quickly and got into a real pickle.  Let me share what happened, so you don’t make the same mistakes.

Mistake Number 1:  Having No Idea of How Much Cash We Would Need to Grow

The business was initially owned by my ex husband, but it wasn’t doing well, and he was on the verge of bankruptcy when I joined.  What I did immediately was to market the types of service that would bring in instant cash.  That was fine, and it worked well.  Then after that, I marketed agressively to just about everyone I could think of. 

The work started flooding in, which was great, so I continued to go after more and more work.  Then we hit problems.  Many of the customers we’d carried out work for were particularly slow payers.  This caused a huge problem, because we had a heap of work coming in, but we didn’t have the cash to buy additional equipment, or take on more employees.

Lesson Learned:  Monitor Your Cashflow Carefully.  Allowing people an extra month or more to pay you can cripple your business financially.  If you use small business accounting software like this one growth can be carefully forecasted.  I use it and it helps me to work out exactly how much it will cost us to do a certain amount of work, then we know in advance how much we can actually afford to do.  You can also use it to work out what would happen if customers pay you late, and it really helps you to avoid getting in to sticky situations.

Mistake Number 2:  Not Chasing Up Our Debts

The next problem was, because we were so under resourced, we simply did not have time to chase up the money already owing to us.  Unfortunately, a lot of people don’t pay up until you chase them up, so the cash took a long time to come in.  By this time we were really struggling to pay the bills, and carry out all the work too.

Lesson Learned:  Chase up your debts as soon as they become a day overdue.  If people don’t pay straight away - keep calling persistently.  In some cases, it’s also worth calling before the due date to remind them that payment will be due soon.  Also, it’s worth considering offering a discount for early payment, or adding interest onto a late payment.

Mistake Number 3:  We Ended Up Undercharging Because We Were Too Busy To Cope

The problem is, when you’re rushed off your feet and don’t have enough staff to cope, if you work in an industry with quite a complex pricing structure, your liable to make mistakes.  We did.  The fact is, if we hadn’t been rushing about like idiots, we could actually have done a third of the work and made the same amount of money.

Lesson Learned:  Often it is worth taking on less work and ensuring that you get every penny possible out of each job.  If you are rushed off your feet you make mistakes.

Mistake Number 4:  We were so busy that we couldn’t possibly do as great a job, as we would have been able to do, if we had more staff.  This was a massive mistake.  If you’re not providing the very best possible service, some customers just don’t use you again.  We also had to give up one huge contract, which I’d put a lot of work into, because we simply did not have the manpower to deal with the work.

Lesson Learned:  Don’t take off more work than you are able to do, and if you are completely snowed under, don’t go after massive contracts in addition to that work.  Sometimes, it is better to turn work away, and you’ll always have another opportunity to go after that work later.  If you bite off more than you can chew and can’t fulfil your obligations, you may never have that opportunity again.

I hope this has helped to highlight some of the problems that rapid growth could cause your business, and that the tips will help you to grow your business at a manageable rate.


[?]
Share This StumbleUpon It!

Posted by cathlawson | Filed Under Running a Business 

Comments

3 Responses to “Rapid Growth Could Kill Your Business”

  1. Jason on July 27th, 2007 1:16 am

    Hi Catherine. Just stumbled upon your blog from ProBlogger.

    I liked what I read, so I tried to subscribe to your feed, but it’s not working correctly. You need to go to feedburner.com and use that RSS URL to create a subscribable feed.

    See ya,

    Jason

  2. cathlawson on July 27th, 2007 3:12 am
    Hi Jason. Thank you. Some of the technicalities of blogging are pretty foreign to me. I will go to feedburner and do that right now.
  3. Jason on July 27th, 2007 7:45 pm

    Anytime.

Got something to say?





Close
E-mail It