Posted by Robert Half Management Resources on Thursday, June 18, 2015 - 14:55 | Follow me
Growth is good. But when it happens really fast, it can be a bit painful. In fact, for small and midsize businesses that suddenly find themselves on the fast track for growth, success can quite easily turn into failure if they aren’t prepared to scale and manage change effectively.
Following are five mistakes fast-growing companies must avoid to ensure they can continue to meet current business demands while seizing new opportunities.
1. Failing to consult accounting and finance professionals
Even if you only work with one accountant right now, and that person isn’t even in-house, you should be tapping his or her professional expertise. Accounting and finance staff know the numbers of your business. They therefore have valuable insight about your company’s strengths and weaknesses from a financial standpoint, which can help to inform your decision-making as you grow.
Don’t try to wing it with accounting — turn to an expert. Consider working with an interim accountant for cyclical needs, like taxes, or as questions arise, such as, “How quickly should I try to accelerate my company’s growth?”
2. Burning through capital carelessly
Business may be booming right now, but are you sure you need that bigger office space, or more inventory, or those new computers? A common pitfall for many fast-growing companies is committing to capital-intensive investments that simply may not be necessary — yet.
Until you’re confident business demands warrant big spending, it may be a wiser course to follow Theodore Roosevelt’s advice: “Do what you can, with what you have, where you are.”
3. Borrowing more money than necessary
When a lender is willing to provide a generous loan or line of credit to your fast-growing company, it’s tempting to take it. You might even view it as a bit of a safety net that you can lean on in the future if your business success suddenly takes an unexpected turn in any direction. But accepting funds based on “what if” versus “need now” could lead to financial burdens that undermine your company’s profits and the ability to borrow money later when it’s really needed.
4. Letting accounts receivable stockpile
You’re working around the clock. You’re pushing product out the door. You’re meeting your clients’ demands. And you’re not getting paid on time — or at all. Huh?
This is obviously not a sustainable business model. Cash flow management is paramount for any company, but especially so for startups and other small and midsize businesses. So, set clear invoice terms, be sure to focus on collections, and send prompt reminders to customers who owe you. And if you don’t need to offer credit to your customers, don’t.
5. Not implementing adequate infrastructure
While preserving capital is important (see #2), it doesn’t mean you shouldn’t make well-considered, strategic investments (see #1) to support your business. Fast-growing companies need to make sure they have the right technology, staff and expertise in place to help drive growth. Think of it as building an “infrastructure for success” — a solid foundation on which your business can prosper.
A final tip: Don’t race to the IPO
Not all fast-growing businesses are destined to become publicly traded companies, of course. But if an initial public offering (IPO) is a goal for your company, take ample time to prepare. There’s a great deal to consider, including whether your company would be ready to meet new financial reporting and regulatory compliance requirements.
Also keep in mind that the IPO process is very demanding for senior management — especially for the CEO and CFO, who will need to spend much of their time on the road talking with analysts and potential investors. In short, these executives won’t be able to focus on everyday business at a time when the company critically needs their guidance and attention.
Fast growth does not always lead to longevity in the marketplace. If your small or midsize business is really starting to thrive, you’ll need to keep nurturing it until it can form solid roots.