Growth – the real business killer
"The financing of business growth remains the biggest
problem facing small businesses" seems an astonishing
statement from the spokesman for the small business federation,
especially as most small business owners think in terms of
cash shortages being more relevant in survival than growth,
and yet the facts are interesting.
Dun & Bradstreet have just released the following astounding
statistics;
- Companies growing by 60% pa are 65% more likely to
fail than the average business
- The same companies are twice as likely to fail as though
growing by 30%
- The same companies are 40% more likely to fail than
companies that actually have declining sales
- Companies whose assets grow by greater than 60% pa are
53% more likely to fail than the average business
- An average growth of 30% seems to be the ideal growth
rate
Is the simple answer over-trading?
When analysed it was found that whilst small companies tended
to be funded by owners loans and large companies had no problem
getting very heavily geared, the jump between small and large
was proving almost impossible to leap for companies.
Peter Drake owns a business that turned-over $2M in
1994 and now has sales of $50M.
"In 1994 we had
a facility of $200,000 secured on the premises, we
now have a facility of $800,000. We have only managed
to sustain growth by allowing our employees to invest in
the company and, in effect, enter into joint ventures with
us. Whilst we have had the opportunity to grow, the effect
is that it is now impossible for us to re-finance with such
a disparity of ownership. When we approached venture capitalists
the general reaction was, give up ownership for huge sums
you do not need."
Peter Drake, like many other owners of growing businesses
has found little in the way of direct help in his re-financing
which in effect creates a glass ceiling.
"Most banks concentrate on offering advice and help
but little in the way of other funding for these type of companies"
says Trevor Dunn of independent financial advisers, Tempus,
"it forces companies to hit a huge barrier when they try to
grow, which on too many occasions means the company shrinks
back to being a small company and an opportunity has gone."
| 
