I love sitting down with a new business owner and seeing the extreme joy plastered on their face when they start explaining their ideas to me. They are a mixture of nervous and excited that they finally took that leap! They have a cool new logo! They have a few clients already lined up! And they are going to make a million dollars by the end of the year!
Many business owners have grandiose plans of growing their business and retiring as millionaires. This is a great goal, you may as well dream big! However, it’s unlikely that large goal will happen within the first 5-10 years in business let alone the first year. Between inflation, overhead and market fluctuations, becoming a 7-digit business is a large undertaking! A million dollars is still a lot of money. Growing and sustaining a business, no matter the industry, is a very difficult task and it takes time and resources. Good business growth is more of a marathon as opposed to a sprint. Just like any growth, it is best done at a steady pace. For those of you with kids, were those sudden growth spurts good? Sure, it means your child is growing but it also means they need new clothes, more food and may not fit in their bed anymore.
Back to business, according to publications like entreprenuer.com and Forbes, the first 2-5 years of business will most likely be the time when there is the most growth by percentage (around 20% and possibly higher) and then it levels off. Aside from that, the general economy grows 2-3% per year and the average business does as well. A business that grows 7-8% is slightly above average and a business that grows 20% outside the first year is outstanding but not always good.
You must be thinking “why don’t I want to grow 20% every year?” Well, that much growth can actually cause a company to go out of business. How? Too much growth can lead for a need for more staff, product, service…. which leads to a depletion in capital and other resources.
Resources must be available to allow for growth. It is very possible that cash flow will not allow for business growth as cash will be used to pay employees or pay for product to sell. For example, an influx of orders can deplete inventory which can cause clients to get angry about delay and visit a competitor while remaining staff is overworked and unable to keep up with the demand but all the while capital (aka: money) has run out and you couldn’t buy more inventory or hire staff even if you needed (and you do need to).
It is important to keep smart growth goals in mind and to be prepared with staff, cash and time. Growth is great, but it must be done intelligently.