As your small business strives for growth, you must ensure that your company isn’t outgrowing its capabilities. Scaling too quickly can sound the death knell for otherwise successful businesses.
However, understanding your business’s limits isn’t always easy. We’ll explore four signs that your booming business may be heading toward disaster – and what you can do to get on the right path forward.
Here are some indications that your business is growing too fast, along with ways to address these issues.
One of the biggest red flags surrounding growth pace is that cash flow dries up even when business is good. Typically, this cash flow management issue occurs because a business collects smaller-level payments while shelling out for new, more significant expenses.
“As you grow, you are spending money to perform on increased demand and volume while collecting on receivables from the lower-volume period that just passed,” said John Torrens, professor of entrepreneurial practice at Syracuse University’s Whitman School of Management.
“The inflows simply do not match up with the outflows during times of high growth. If a business did not plan for this by building cash in advance of a growth stage, then this can create stress on the organization.”
What to do about insufficient cash flow
Ideally, plan for cash flow problems before they happen. Saving cash in a growth reserve fund can preserve the liquidity you’ll need when you jump to the next level and expenses rise along with your business. As always, it’s wise to overestimate expenses and underestimate revenue. This way, when projections are off, you have a margin of error with which to operate.
>>Learn More: Cash Flow Calculator
If you’ve failed to maintain enough liquidity and can’t increase cash flow quickly, don’t worry. Most of the cash flow problems associated with rapid growth are a result of money being tied up in accounts receivable. If you’re willing to spend a little bit off the top, an invoice factoring company will loan you a large percentage of your outstanding balances while actively pursuing collections. This frees up working capital for your business and removes the burden of following up with unpaid accounts, so your staff can focus on quality service instead of on debt collection.
Factoring companies can help you maintain a steady cash flow to pay your bills. Check out our reviews of the best factoring companies to find one to suit your credit score and funding needs.
As a business scales, its responsibilities increase. Your employees are likely handling more, without any change in their compensation, at least initially. This is the perfect recipe for a morale drop, leading to declining productivity and poor customer service.
While business owners and executive teams may welcome rapid growth, an increased workload and stress can demoralize employees. Some employees may even resent their leadership team and consider leaving the business.
What to do about declining employee morale
A successful business requires happy, engaged employees. Increasing compensation is an obvious solution to bolster morale as your business experiences rapid growth. However, this may not be possible amid cash flow issues.
If you can’t give raises or bonuses, there are still some ways to improve employee morale: Ensure your employees aren’t overworked, recognize their contributions publicly, and find ways to reward them. For example, offering flextime can improve morale. Once your cash flow returns to normal levels, consider offering discretionary bonuses or increasing compensation. If your employees are overtaxed, consider bringing on new hires to reduce everyone’s workload. [For more ideas, see these other creative ways to improve employee morale.]
If you’ve seen a sudden uptick in customer service complaints, it could be a sign that your business has grown too quickly. With more clients and the same number of employees, it can be challenging for your staff to continue giving each customer the same level of attention. Employee burnout and fatigue could lead to other mistakes, resulting in even more dissatisfied customers.
“Our first signs that we were growing too quickly were simple things, such as not returning prospects’ emails and calls as timely or not being able to take inbound calls as needed,” said Matt Schmidt, CEO of Burial Insurance Pro. “I woke up one day and knew we had to bring on new people to address the demand of the public.”
What to do about a customer service quality drop
When the quality of customer service drops, you have two choices: hire more people, or take on less work. Naturally, hiring more people is an attractive option, but if you’ve run into cash flow issues, you’ll need to rectify those problems first. Nobody wants to turn down more work, but if paring back growth to gain stability ensures your company’s long-term success, it could be a prudent decision.
When a business grows too quickly, pressing tasks begin to pile up. This backlog can cause management to be reactive instead of playing a proactive, strategic role. While it’s essential to manage the day-to-day workflow, it’s also crucial to plan for the future.
If growth is outpacing planning and leadership is in disarray, it can exacerbate the other problems caused by scaling too quickly.
“One of the problems I have witnessed when companies grow too fast is that top leadership and management struggle so much to keep up with ‘I need it yesterday’ demands that they stop paying attention to the long-term planning and creative development that fueled the company’s growth in the first place,” said Frankie Russo, CEO and president of Potenza Creative.
What to do about a lack of proactive leadership
Managers and leaders must ensure delegated tasks are completed promptly, but they can’t get bogged down in minutiae. Trust your employees to complete the work you’ve assigned them, and consider using project management software to track and manage workflows.
The management team should continue to gather specifically for forward-looking meetings. This way, even when the day-to-day workflow is hectic and the demand to follow up on incomplete tasks is great, decision-makers can carve out time to think about where the business should go and how they will take it there.
Business owners may be tempted to throw caution to the wind and chase growth. However, not all growth is good. Here’s a look at some of the downsides of growing your business too quickly – and what you can do to prepare.
When you grow too quickly, you risk overburdening your customer service staff. Your team may make mistakes or may not be able to handle all the service issues thrown their way. Poor customer service can tarnish a growing business, and overcoming that reputation is challenging. When you grow at an optimal pace, your team is equipped to handle the workflow and provide a customer delight standard of service.
Small business owners often keep track of financials in their heads or via their own paper system. As your business grows, however, your expenses may add up faster than you thought they would, leading to devastating accounting mistakes. Prepare for business growth by implementing one of the best accounting software solutions early. When your cash flow is steady, consider hiring an accountant to track financials and monitor spending.
When your business is small, it’s easy to give your team autonomy while maintaining an overview of business operations. But as your business grows, a lack of centralized organization can cause critical operational mistakes. Before your business takes off, create a workplace culture that values teamwork and communication. Ensure everyone can access the information they need to do their jobs properly, including cost estimates, budget planning, cash flow, sales figures and inventory data.
As your business grows, you must expand your team. But if you grow too quickly, you may rush through the hiring process, getting bodies in the door rather than seeking out ideal candidates. This can lead to hiring mistakes, poor performance and the additional costs of recruiting even more new people. To avoid these outcomes, establish a hiring process first to help ensure you onboard the right candidates the first time.
Growth is good, and businesses shouldn’t shy away from it. However, unplanned growth can be detrimental when it affects operations and takes control out of management’s hands. To avoid runaway growth and the eventual collapse that accompanies it, plan ahead, scale with purpose, and avoid biting off more than you can chew.
Kimberlee Leonard contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.