Ever wondered why many startups don’t go beyond five years of operation? This is a common question among many prospective entrepreneurs and others who have started businesses but failed fast. Whereas it’s the dream of every business owner to make profits, other fundamental factors determine the longevity of a business. Unless they are incorporated into a business’ culture, the business is likely to fail, regardless of its speed of growth.
Poor Cash Flow Management
Financial experts consider rapid business growth as equal to no growth, mainly considering the management of cash flows. A business growing fast is likely to engage in poor cash flow management in terms of using funds that should be allocated for other needs, such as unforeseen circumstances. Rapid growth demands more cash requirements, leading to excessive expenses considering the profits that a business earns. Although it’s a typical situation for a growing business, it is likely to fail if the people responsible for its finances don’t plan accordingly.
Whenever a business expands too fast, most of its operations, services, and goods are qualitative. However, the result of an unplanned expansion is strained resources, including human, capital, and production resources. It’s always challenging to maintain increasing customer demands without compromising on certain features, such as quality of products and services that a business offers, customer relations, and effectiveness of internal operations, leading to negative customer feedback out of not meeting client expectations. If not dealt with, negative feedback can be the beginning of a downward trajectory for any business, necessitating the need to handle it seriously, amending any poor services.
Deprives Entrepreneurs Learning Time
An entrepreneur starts a business with a market gap in mind, aiming to bridge it by offering services or providing goods that, in turn, earn the business profits. However, when conducting business, markets present various challenges that force entrepreneurs to embark on a time to process, digest, and reflect on every milestone, enabling them to improve their strategies for the other products or services they provide. Rapid business growth deprives an investor of this valuable time to understand different business and market dynamics, making it difficult for them to address any challenges they may experience in the future.
Whereas it’s exciting to invest in a business and experience rapid growth, such a trajectory presents multiple challenges to the business and entrepreneurs. With these issues ranging from poor cash flow management to negative feedback, a business should progress through all growth phases, building relationships with all stakeholders and allowing entrepreneurs time to collect valuable experience in that course. For more information on business finance, consult with these small business accountants in Brisbane.