How to tell if your business is growing too fast

What kind of risks can a business face from ongoing growth?

Growth is great – until it isn't. Two-thirds of respondents to the 2017 Export Finance & Insurance Corporation (EFIC) Exporter Sentiment Index believe revenue is going to grow in the next 12 months, while 34 per cent anticipate easier access to funding to fuel this growth.

While positive economic conditions have fostered this upswing, businesses – especially Australian SMEs – can find themselves growing too quickly, effectively sacrificing their long-term prospects for a short-term gain. Is yours showing any of these risky signals?

Signing a big contract with big business

One of the biggest steps an Australian SME can take is signing a contract with a large corporation. This can bring the promise of steady income at a high volume, but reliance on one big contract can constrict your cash flow.

One big deal can foster over-reliance and risk.One big deal can foster over-reliance and risk.  

This is clear in Xero's recent survey of 500 SMEs, which found more than 3.8 million invoices between small and large businesses were paid late (or not at all) in the last six months. So large is the problem, that 84 per cent of SMEs want the government to legislate a more even playing field for SMEs dealing with big corporations.

If your business has signed a large export contract that should fuel growth, be wary – especially if this now constitutes a large part of your revenue. Over-reliance on one big contract can leave you high and dry should the invoice remain unpaid.

Over-committing to too many clients

Operators have to thoroughly vet everyone they work with.

Just as reliance on one client can be a risky sign of growth, fostering too many business relationships at once can also have a negative impact in the long-term. EFIC's research tells us that a lot of the positivity in the export sphere is driven by higher demand from export markets, which can find many SMEs entering numerous contracts to grow their business.

However, operators have to thoroughly vet everyone they work with, and analyse all of the risks that come with engaging in any client relationship. Rapid expansion through the signing of multiple trade deals at once can look like good business on its surface, but if precautions are not taken it can result in multiple instances of bad debt.

As we said at the beginning – growth is good! But if your business is looking at rapid growth in one form or another, it's crucial to implement the right safeguards. Start by talking to the team at Coface about our trade credit insurance options.