Almost every business aspires to grow. The best way to secure your business’s future is to ensure that it remains profitable year after year. An increase in growth can provide your clients with better work at more affordable rates or it can help you acquire top notch talent. There are many reasons, and many ways, to grow a business. However, sustainable growth is key to ensuring the future of your business.
What Is Sustainable Growth for a Business?
As your business grows, you must consider the rate at which it grows—and whether or not you can afford to keep up with it. Sustainable growth for a business is the maximum it can grow without you having to incur debts to keep pace with growth. Few entrepreneurs or business managers can handle exponential growth with limited resources. If you grow your business too fast, you might find yourself taking on more and more debt or tapping into too much equity. While you might sustain yourself for a while, any hiccup in your business could topple the house of cards and plunge your business—or even you—into unmanageable debt.
How Can You Prepare for Sustainable Growth?
Every competent business owner must have a realistic business plan in place before opening to the general public. A business plan should be a detailed blueprint for operating and growing a business. Although most businesses fail in the first couple years, few businesses last long enough to witness growth. However, you should at least lay the foundations for it in your initial plan. There are two components to growth: strategy and capability. Strategy, of course, refers to the detailed business plan. Capability refers to your business’s infrastructure—physical location, online, employees, transportation, distribution, and so on.
If you find your business in a position in which it’s growing, you must be careful in helping to guide its growth. If a business grows too fast without the necessary funds to cover the expansion, then the entire situation might come crashing down. If it grows too slowly, however, it can stagnate and you might find yourself surrounded by growing debt and missed opportunities.
How Can You Calculate Sustainable Growth Rate?
Believe it or not, it’s a straightforward and fairly simple algebraic equation. Retention Ratio x Equity Return = Sustainable Growth Rate. To break it down, let’s examine each part of the equation. The Retention Ratio is how much of its earning a company retains. If you pay out 35% of your earnings, for example, then your retention ratio is 65%. Return on Equity (ROE) is equal to what the business earns on investments in the business. When you know what numbers to plug into the Retention Ratio and ROE, you simply multiply the two. The sum delivers your Sustainable Growth Rate.
Focusing On Your Business is Key
Before you humor dreams and fantasies of growth, it’s crucial that you focus on your business as it is. Although you should always plan for the future and anticipate growth, your business will never grow if you don’t concentrate on the here and now. To succeed in business, you must attract and retain consumers. “Sustainable growth begins at the point of nurturing and taking good care of the clients you already have,” Jonathan Furman, Founder and CEO of Furman Transformation, said.
This is where many businesses fail. They either offer goods or services for which there is no demand or they fail to capitalize on or exploit their niche. Marketing is also critical, and so is the attention you pay to online activities, especially reviews. Ignoring any of these because you’re too occupied planning for the future will probably squander any chances you have to grow your business.