Most businesses want to grow but growing beyond your means can be damaging.

Growth is valued by successful companies ranging from start-ups seeking investment to large, publicly traded companies aiming to boost their worth.

While growing your business quickly can be a good thing, sometimes growth can have a negative effect on its viability and cash flow.

There is an adage that goes ‘growth is vanity, profit is sanity and cash is king’. Most entrepreneurs have seen the ‘hockey stick’ growth curves of companies such as Facebook and Google. These charts depict rapid, exponential growth, both in customers and in revenue.

Some businesses can support rapid growth. These are typically companies that have a highly scalable product. They can grow without costs growing at the same pace.

While this type of growth is nice it can be a serious risk if your business model doesn’t allow for profits to scale at an exponential rate without a similar increase in expenses.

If you need to take on staff to deal with growth in the volume of customers which subsequently leave your company, your expenses could soon become greater than your income. Similarly, a period of strong sales growth could encourage you to expand your sales team, only to be followed by a subsequent period of slow growth.

The best growth is stable growth. Rapid growth can be expensive so if your model depends on stability, a rapid growth period could leave you with long-term cash flow problems.

When your business proves successful on a small scale, it’s tempting to expand it as much as possible to maximise its revenue. This can result in the quality of your product – the source of initial success – decreasing with scale.

An example of this dilemma in action is when a retailer expands from one location to several. Instead of being able to manage operations in all locations, the owner – often the driving force behind its quality – can only manage one.

If your company delivers an experience that doesn’t scale – for example, a bespoke service that’s built around great customer service – scaling can often ruin what makes it great.

When quality is one of your USPs, it’s better to stay small and excel than to grow larger in sales volume and lose your advantage.

Growing rapidly can mean borrowing more money, but you can use a mixture of invoice discounting and trade finance to support this growth rather than taking a commercial loan and increasing the burden of debt on the business. Growth and debt are related to each other in business. As a company grows the amount it owes its creditors can greatly increase. With a good business model and healthy risk management, this is rarely a serious problem. Without sufficient risk management, or with a business model that simply doesn’t work when grown beyond a certain point, however, taking on more debt to fuel growth can lead to a cash flow crisis.

When your business is growing it’s easy to overlook the warning signs of a potential cash flow crisis. Late payment from a customer isn’t as big a problem when you’re earning more every month but it’s still a problem.

Extending your company’s line of credit to make it grow can be a mistake. Rapid unsustainable growth – combined with debts – can cause cash flow issues.

Growth is important but it shouldn’t be your business’ priority. Focussing on short-term growth can blind you to issues that might eventually affect your company’s solvency. Before focussing on growth, undertake an audit to locate and solve any management, product, service or accounting issues that could grow as your business expands.

Growing your business means growing your revenue and your profits. It also means growing your liabilities. By growing strategically instead of excessively, your business will enjoy steadier earnings and greater financial stability.

Some of these issues may lead to a requirement for turnaround finance. Traditional sources of finance may no longer be open to you. Your bank will not extend facilities and you are either fully geared or may not wish to borrow against your balance sheet. In these cases, an injection of specialist equity capital can be the answer.

There is plenty of activity in the turnaround finance market but company directors and entrepreneurs need to be aware that almost all the players in this market are insolvency practitioners, secondary lenders or management consultants. All have their place, providing necessary services when your business requires them. However, none of them provide what is, in many cases, critical to the future of the business – new capital.

Our sources back businesses in turnaround with new capital. They add value with their business acumen and track record. Most importantly, they act quickly. When they take on a new project they are looking to put investors together with our client; sometimes within a matter of days, almost always within a period of one to four weeks from the initial introduction.