Gearing up for growth

Money must be allocated to plant, property, inventory, accounts receivable, and similar assets. Money is also spent for added employees (rarely can you add people just as needed – people are added in anticipation of need), advertising, supplies, and all the things that enable a business to run. A lot of businesses got caught overspending during the current economic downturn, and as the growth failed to materialize, expenses grew too fast to be contained. Even though our region has done remarkably well, a number of enterprises have suffered as their customers pulled back spending.

I recently was invited to participate in a business which has a wonderful reputation, great client base, and is in one of my favorite industries. As we discussed my involvement, it became obvious the business was set up for a much larger volume. The owner had in place over $1 million in assets, solid, well-paid employees, facilities and everything that was needed for the desired volume to be highly profitable, but key customers had drastically been forced to cut back rather than carry forward with continued expansion. As much as I liked the business and the industry, our current economic conditions dictated a conservative approach, so I did not become actively involved.

An enterprise must grow to be able to provide added employment, good benefits, and remain profitable, but when anticipated growth fails to materialize it is costly. Planning and spending in anticipation of growth is a very hard challenge; perhaps one of the biggest risks a business owner must take. PB

Tags: business advice