FD’s review the risks for growing companies.

April 9th 2014 | Posted by phil scott

FD’s review the risks for growing companies

Signs are good for the economy right now, and the business landscape is ripe for expansion. One of the main responsibilities resting on an FD’s shoulders over the coming years will be plotting their organisation’s growth.

With this in mind, we spoke to delegates at the latest FD Recruit – FD & CFO Conference to share their experiences of rapid growth, both the good and the bad.

The gathered audience, including some of the UK’s most successful finance directors, agreed that whilst big growth may look attractive as headline figures, it is absolutely crucial that progress is planned and measured.

Delegates discussed how it is possible for an organisation to grow too fast, and suggested that huge growth that ultimately damages a company’s position in the marketplace is less desirable than a smaller amount of growth which the company can handle.

Here are the six biggest concerns of FDs as their companies embark upon growth:

Accessing bad finance
One of the biggest barriers to growth is the need to fund it. Most businesses don’t have the large cash reserves to pay upfront for any stock, staff or new systems required now that will only see returns weeks or even months down the line.

So in many cases, a firm will look to source finance, whether that’s through a bank, solutions such as invoice financing, or selling equity to investors.

The worry here is that a firm, in a rush to access the cash, will sign up to unfavourable terms – either uncompetitive interest rates, unfair repayment deadlines and penalties, or other small print.

Choosing not to recruit
With expansion, workload increases. And it’s expensive and time-consuming to hire new staff, so in many cases, especially during the early stages, a company will give its employees extra work.

This is fine to a point, many employees will appreciate the overtime. But after a while, it becomes all too easy to overstretch your staff. Stressed staff are unhappy, less productive, more prone to mistakes, often eventually take time off sick and may even leave the company to find more rewarding or less difficult work, at which point the company loses valuable staff and expertise.

Recruiting badly
Adding to your team shouldn’t be done lightly, not only are bad employees a waste of money, but they can disrupt your existing employees and make a situation worse.

The right candidate should have the required skills for the role and match your organisation’s ethos. Even if the labour pool doesn’t seem very big, that’s no reason to snap up an ill-fitting employee. Recruitment should be a thorough process.

Overestimating your suppliers
A lot of company growth relies on the assumption that your suppliers can also expand their capacity and have access to more resources and more raw materials.

This isn’t always the case. Before accepting a large order, or promising to produce more, check with your suppliers that they are able to help, otherwise you will end up making promises you can’t fulfil.

Choosing quantity over quality
It might be attractive to fulfil a large number of orders, there might even be a nice spike in your sales figures. But to ensure that the growth is sustained, a company should stick to the principles that earned its growth.

Don’t start producing lower quality goods or delivering a lower quality service just to fulfil a higher number of orders. That’s falling short of what the customer expected, and a surefire way to earn returns, complaints and a drop in demand.

Focusing on one big customer
So you landed a huge order, the sales numbers are impressive and it looks like a new dawn for your business. But the old adage of eggs in baskets applies here.

Forgetting your existing customers is easily done, but a dangerous move. Stop paying them attention and they will leave. Then you will be left relying on your one new customer, hoping they don’t change their minds. Keep your existing customers happy –  it’s easier to do than winning them back or replacing them.