Small Companies and Dangers of Growth
In general, the owners of small businesses that I meet with believe that growth of sales is the solution to all problems. On the surface this makes sense. We sell more and our bottom line is improved.
What is not usually understood is that overhead grows along with sales, and that too goes to the bottom line. Growth requires additional sales and administrative staff, capital investments in machinery and buildings, and working capital that requires larger lines of credit. Growth also introduces complexities not considered previously, such as a larger and stronger management team. Our exposure to competitive forces is also increased as we are taking business away from our competitors. They will retaliate by lowering their prices, and so will we if we want to retain our customers.
As much as we desire growth, it needs to be part of an overall strategy that insures the growth will be well managed and ultimately successful.