Are you an ambitious entrepreneur with a fast-growing business? That’s great—but watch out for these red flags.
Intuit’s Small Business Employment Index recently reported that 25,000 new small business jobs were created in May, about a 2 percent annual growth rate. It’s good news as the economy emerges from the Great Recession, but is growth always positive? Virginia Ginsburg, founder and president of Swell Strategies in Santa Monica, California, says that left unchecked, a small business’ growth could drive it into the ground.
Ginsburg, who specializes in small business and entrepreneurial growth, lists the following signs that a company is expanding too quickly.
1. You’re exhausted.
Sure, being a small business owner is demanding. But if you and your employees constantly work at a breakneck pace, sooner or later, you’ll break down. “Human beings are best when they sprint—investing significant energy for a period of time and then balancing that with rest,” Ginsburg says. When there is no rest, everyone becomes exhausted, which can derail even the best growth strategy.
The telltale signs: missed deadlines and increased mistakes.
2. Your employees aren’t engaged.
When employees go from being superstars to low-level performers, you lose control of your most important asset: your people. Watch out for increased absenteeism, high turnover, frequent tardiness or complaints from customers about employees being rude or nonresponsive.
But don’t point a finger at the employee. Instead identify whether you see a trend that needs to be addressed. “Disengaged employees who are on the front line can directly lead to lost customers, and disengaged employees at every level impact productivity and future growth potential,” says Ginsburg.
3. Your customers are walking away.
When a company is expanding too rapidly, it often loses control over customer support because it’s too busy getting new products out and new customers in. “Repeat customers are golden. They lead to repeat revenue with very little marketing and sales expenditure,” Ginsburg says. “When key customers on which you built your business begin to disappear, you need to pay attention.”
A good rule of thumb is to contact each customer at least once every two months, be it a call, email or meeting, with the sole purpose of understanding and fulfilling the customer’s needs. If you can’t make time for this, along with at least monthly lead generation activities to land new business, your growth may be out of control.
4. You’re short on cash all the time.
Lack of cash flow isn’t necessarily a bad thing, Ginsburg says. A business that’s growing solidly will likely have cash shortages as income and expenses balance out, but it will have no problem filling in cash through short- or long-term loans. On the other hand, unmanaged growth creates dangerous cash shortages that could affect your opportunities to move forward.
Red flags to watch for include inability to make payroll, postponing vendor payments, dipping into personal savings (including taking out a second mortgage, maxing out credit cards or taking out personal loans), not paying yourself, missing customer deadlines because you don’t have cash to produce your product or service or cutting core components of the business to reduce costs.