Dangers of Growing Your Business to Fast: Slow growth will put your business on a solid financial foundation.
My great aunt was a wise woman. She proudly displayed the certificate she received when she completed the seventh grade in school. That was her formal education.
But her wisdom was accumulated over a lifetime. Hers was a long list of rules and admonitions derived from the practical side of life. They served her well. And they have served me well.
In one conversation we had, she gave me a memorable piece of advice.
At the time, I was in my late teens, anxious to get on with my life and frustrated with the roadblocks. “Never run so fast that you pass by more than you catch up with,” she told me.
Her advice has popped into my mind many times over the years. When I started one of my small businesses, I experienced the same frustration. I had used some of my own funds to get the business off the ground. The bottom line was touch and go, and I wanted to grow faster.
Should I deplete my savings? Should I go for a loan? Should I run up my credit cards? Should I seek out an investor? Or should I wait for the bottom line to generate excess funds to grow on?
Plowing the last of your personal savings into your business is not a good idea. All sorts of unforeseen calamities can befall you personally. In business, the economy can tank. Or, your marketplace can change directions, leaving you high and dry.
Going for a loan can be frustrating. Banks and other lenders are overseen by tight rules and regulations these days. Aside from all the paperwork and the delays, loans must be repaid. With a touch-and-go bottomline, that monthly payment can become problematic.
Just about everyone I know in business uses credit cards. They can be a temporary lifesaver. The key word is temporary. Getting through a temporary problem using your credit cards can indeed be a godsend. The key to use is, always pay them off promptly. My advice is, never use credit cards to try to push the growth of your small business.
Seeking out an investor in your business can be a good way to go. But there will be a new set of problems if you go this expansion route. You must be compatible with your angel. Spell out very clearly your relationship, and draw up a legal document. Always include an exit strategy--for yourself and your investor. And cover the arrangement with insurance.
Generating the money to expand from within the business takes time. Growing excess funds in your bottom line can be slow, but it is a tried and true path to growth. Don’t be impatient. Using your own business to grow puts the business future on a solid foundation. The business is growing itself, without inputs and constraints and problems from the outside.
You have several options to get the funds you need to grow. Consider them all. But, remember these wise words my great aunt spoke to me over 60 years ago. Never run so fast that you pass by more than you catch up with.
By Al Warr
Over the past 40+ years, Al has founded, operated, grown and expanded several small businesses. He knows the acid burn in his stomach when the cash flow stops flowing. For 10 years, Al headed the Business Owners Institute in New Jersey. Helped over 2,000 business owners work through problems. Currently he writes a daily Free blog HelpMySmallBusiness.Blogspot.com. In his spare time, Al has written over a dozen books--find them online at Amazon.com/Kindle.