Where Is All The Money Going Series: Chapter 8 - Can the Business Afford to Grow?
Written By: Melissa Cunliffe (CA)
Growth can create opportunity — but it can also consume cash, increase risk and put pressure on the family
Growth is exciting. A new contract. Another location. More staff. A competitor acquisition. Bigger premises. A new product line. For many business owners, growth feels like the natural next step.
But growth is not automatically good. A business can grow and become less profitable, more heavily indebted, more complex, more dependent on the owners, more exposed to risk and more stressful for the family.
| Can we grow in a way that actually strengthens the business and moves the family closer to what they want? |
Growth Should Serve the Goal
Before talking about expansion, ask why. Increase profit? Create scale? Make the business less owner-dependent? Create opportunities for staff? Bring the next generation in? Build business value? Create family wealth? Prepare for sale? Growth should have a purpose.
Bigger Is Not Always Better
A $10 million business is not automatically better than a $5 million business. A smaller business with strong margins, reliable cash flow, manageable debt, capable people and less owner reliance may provide the family with far more freedom and security.
Can Your Business Afford to Grow Sustainably?
Growth should create stronger profits, improved cash flow and greater business value. If growth creates financial strain or operational stress, the business may not truly be able to afford the expansion.
Growth Needs Cash Before It Produces Cash
Growth can require recruitment, wages, stock, equipment, vehicles, premises, marketing, technology, professional fees, finance costs and working capital before the new revenue arrives.
Build a Growth Model Before You Build the Growth
Model several scenarios. What happens to gross margin, labour, overheads, rent, debt, working capital, tax, management costs, owner time and cash flow? What if the growth is only half as strong as expected? What if margins are 2% lower? What if it takes twelve months longer?
The Break-Even Point Matters
Growth often increases fixed costs — another manager, office, lease, vehicles, software and administration. The business may need a higher minimum revenue just to break even. Know how much more must be sold every month to cover the additional overhead.
Growth Can Create Management Problems Before Financial Problems
The owner used to approve everything, know every customer and oversee every job. As the business grows, management structures need to grow too. Otherwise the owner becomes the bottleneck and the business becomes busier but less effective.
Growth Should Not Destroy Health or Family
Imagine growth creates 50% more turnover, 20% more profit, double the debt, 30 additional owner hours each week and constant family stress. Was that successful growth? Financially, perhaps. Holistically, perhaps not.
Not Every Customer Fits the Future Business
A new customer may offer $1 million of annual revenue but demand low pricing, 90-day terms, significant equipment and represent a large concentration risk. The headline revenue looks exciting; the risk profile may not.
Growth Through Acquisition
Buying another business can accelerate growth, but you may also be buying poor systems, old equipment, unhappy employees, weak margins, customer concentration, hidden liabilities or a business heavily dependent on the previous owner. You are not buying turnover; you are buying the future economic benefit the business is expected to create.
The Best Growth May Come From Improving What You Already Have
The biggest opportunity may come from increasing margins, improving productivity, reducing wasted capacity, better pricing, better customer selection, better systems, faster debtor collection, reducing rework or improving utilisation of existing assets.
| Sometimes improving the existing business is the highest-return growth strategy available. |
Ask Yourself
Why do we actually want to grow?
How much profit should the growth create?
How much cash will it require, and where will that cash come from?
How much extra working capital will we need?
How much additional debt is required?
What is the new break-even point?
Can our current systems cope?
Do we have the right people?
Will the owners need to work more or less?
What happens if the growth is only half as successful as expected?
Will the growth make the business more valuable?
Does it fit with retirement and succession plans?
What impact will it have on the family's health, wealth and relationships?
| Are we growing because it takes us somewhere we actually want to go — or because we have become conditioned to believe bigger must be better? |
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
Good growth starts with a strong foundation: margins, cash flow, working capital, tax planning, debt capacity and reliable information. If these are weak, growth can magnify the weaknesses.
PROTECT
Growth creates new risks — more debt, staff, customers, guarantees, fixed costs and complexity. Understand what could go wrong and make sure the business has resilience.
PROSPER
Growth is a Prosper strategy when it creates stronger profit, more valuable assets, greater business value, better opportunities, more family wealth and more choices.
| Instead of asking 'How big can we make this business?', ask: What kind of business do we actually want to own — and what growth will help us build it? |
Every successful growth story starts with a clear plan and realistic financial modelling. If you're considering the next stage of growth, we'd be happy to help you assess the opportunities, risks, cash flow requirements and impact on business value. Book a meeting today and gain clarity before making your next big business decision.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
