It’s axiomatic that business owners want their companies to grow, and for many that’s exactly what’s happening in this economy. The rewards of growth mean more money coming in that can be used to hire additional employees, invest in new equipment, pay off loans, and save for future activities.
However, rapid growth can trigger some problems that need to be addressed. Here are some of the risks, and what you can do about them.
Understaffing
In order to handle more business activities, you’ll likely need to put more people on the payroll. While you can outsource some tasks (e.g., fulfillment) and automate other tasks (e.g., invoicing), you need employees who are there on a continuous, long-term basis.
In today’s tight job market, adding to your staff quickly can be challenging. You’ll need to figure how much you can afford to pay in wages and benefits in order to attract and retain the best employees possible. And you’ll want to carefully vet job applicants to make sure they’re a good fit for your company.
Cash flow
Recognize that rapid growth usually is accompanied by rapid spending. For example, you may need to increase inventory, staff, advertising, and other expenditures. These can weigh heavily on cash flow management. As you probably did when you started out, keep a close eye on cash flow so you don’t find yourself in a cash crunch.
Need for capital
If you want to support rapid growth, you may need to bring in additional capital by attracting investors or borrowing money. Either path you choose has its pros and cons. Be sure to calculate carefully what you need so you don’t aim too high or too low. Work with your CPA or other financial adviser to see that the numbers work for your situation.
Servicing customers
With small businesses, many customers come to depend on working with or at least talking to customers. With rapid growth, you need to be sure that customer needs continue to be met and that they feel they’re still receiving a personal touch.
Legal and tax traps
Being small entitles businesses to exemption from a number of federal and state workplace laws (e.g., exemption from the federal Family and Medical Leave Act requiring 12 weeks of unpaid leave for eligible employees). It also entitles companies to special tax breaks (e.g., the small employer health insurance credit, disabled access credit, and using the research credit to offset the employer share of Social Security taxes up to $250,000). Crossing a threshold … by increasing the number of employees and/or revenue … may end access to these exemptions and breaks. With rapid growth, the threshold may be crossed unnoticed during the year, resulting in legal and tax problems.
If you’re growing rapidly, be sure you stay on top of HR issues with someone in-house or through another source (e.g., your payroll company). Also be sure to keep in touch with your CPA to monitor tax issues throughout the year so you aren’t surprised at tax time.
Owner issues
As your company grows, it may require putting managers in place. This removes you from direct control over your staff. It also removes you from day-to-day operations. While this can be great, allowing you time to step back to better plan for the future, it may present problems.
You may not be suited for or enjoy higher level activities. You may miss interacting with customers and staff. Just look at the list of Fortune 500 companies that ousted their founders for various reasons, including Steve Job’s removal from Apple (although he came back), Travis Kalanick’s forced resignation from Uber last year, and Rob Kalin’s ouster from Etsy (investors thought he was a poor leader).
Bottom line here: You need to grow rapidly as your company grows rapidly, recognizing how things change and what you can do about the change.
As Pat Summitt (women’s head basketball coach with the most wins to date) said: “Change equals self-improvement. Push yourself to places you haven’t been before.”
