Growth is essential to any business; if you are not growing you are losing ground to your competitors. Why is growth important to a business? Growth can bring about efficiency to your business, in some instances, you will have the ability to better use your labour force. Other benefits provided by growth are the additional profits that can be used towards year-over-year raises in business costs such as employee wages, utilities, etc. Depending on your line of business, you may be impacted differently than a business in another industry.
There are also downsides to business growth that can make a business less profitable, and even destroy business altogether. Rapid expansion carries the risk of making your business unmanageable, more costly, and less efficient. Depending on your business, the difference between growing 10%, and growing 25% may require you to double your labour force since you will not be able to use your existing labour force to take on this new rapid growth. In addition, all this rapid growth in your labour force may require larger working quarters, as well as additional administrative staff. Growth can also tie up cash, especially if you have to invest in purchasing equipment, or have to move into larger quarters.
Hopefully, you are starting to see how such a move can erode your profits. This article is not to discourage you from seeking growth for your business, I am only recommending that you do your due diligence when faced with this possibility. Rapid growth can have a tremendous impact on your business, and on the quality of your service or product. To analyze your growth capacity, consider the following:
- Determine your idle time rate by dividing your idle time into total hours paid to your employees directly related to generating revenue.
- Not only will idle time rate help you determine how efficiently you are using your labour force, but it will also provide you with insight into how much additional growth the existing labour force can handle.
- If it is possible for your current labour force to absorb growth, can it still be delivered with the same quality, or will the quality suffer given that your employees are expected to work harder?
- Your business structure to support this new rapid growth plays a huge role. Determine whether you have sufficient administrative staff, and required workspace.
- Determine the additional capital expenditures required in relation to the growth opportunities, rapid expansion will tie up a significant amount of your capital, which can have an impact on the entire business.
The bottom line, business growth is vital, it can make your business a competitive force, efficient and profitable. The level of development however is entirely dependent on your type of business, your labour force capacity, financial resources, and overall business structure. The slightest miscalculation can get you in trouble very quickly, and drive your business to the ground.