Why businesses fail during the growth phase

Willie Nortier, COO of specialist investment company Business Partners, says that overtrading is the main reason for

failure in growth companies i$.$e$.$ they are growing faster than their capabilities allow them. While you shouldn$$t try to

suppress growth, be careful not to over$-$extend yourself and put the business under unnecessary pressure.

Growing businesses also often need better information management systems than start$-$ups, explains Nortier. $$The

systems have to grow with the business. It is easy to keep tabs on things when you are operating on a small scale, but

you need to be able to get accurate information to act when necessary in order to succeed.$$

Cash flow management is crucial when growing. $$You need to match your capitalisation and growth in order to have

enough working capital to fulfil your obligations,$$ explains Nortier. Business owners can come unstuck here, particularly if

money is tied up in stock when cash is needed. The lesson here is to grow in line with your financial abilities.

Growing in a market that isn$$t sustainable and putting all your eggs in one basket are also best avoided. Don$$t gear up

based on $$expected$$ orders or for a single big project or client, and never tie yourself into fixed pricing. Tread carefully

and make sure your growth strategy is sustainable and adaptable.

$$If your success was based on your personal touch, be very careful to grow too fast,$$ warns Nortier. If expansion means

that you stop interacting with customers, it could spell disaster. Quality control is part of this personal touch, and putting

the right systems in place is one solution to this problem.

While there are many reasons for business failure, there are just as many strategies to counter problems before they

arise. Ask plenty of questions during both the start$-$up and growth phase so that you can base your decisions on realistic

data. And whatever you do$,$ do it for the right reasons and with all your heart. How can managers motivate their teams to enhance performance and productivity