Overcoming Business Growth Issues
Problems Caused by Business Growth
Problems caused by business growth
In some cases, growing the size of a business can fail to improve its profitability and can lead to cash flow and coordination problems
Problems and solutions of business growth
Poor communication
Longer chains of command and wider spans of control for managers may lead to slower decision-making times and inefficiency
Solution:
Use the latest communication technologies, such as instant video calls, to improve communication between managers and workers
Decentralisation may help to delegate decision-making
Larger firms are often harder to control
As a business grows in size, it can experience diseconomies of scale such as poor co-ordination of resources
Solution:
Operate as a series of smaller units which allows local or functional area managers to have more control
Increase delegation in order to empower workers and get jobs done more quickly
High costs and cashflow problems
Expansion can be very expensive as it may involve developing a new product range or buying a new factory
High costs in the short/medium term means the business may need additional finance to avoid cashflow problems
Solution:
Grow slowly using profits rather than loans to fund gradual and less risky expansion
Manage cash flow carefully, making use of retained profits and short-term borrowing to counter cash flow shortfalls
Difficulties of mergers and acquisitions
A culture clash may occur if a merger or acquisition takes place between two different firms due to different management styles
Solution:
Ensure good communication so employees are less likely to be resistant to change
Take time to carefully negotiate and plan mergers/acquisitions to reduce 'teething problems'