- In some cases, growing the size of a business can fail to improve its profitability and can lead to cash flow problems and poor coordination
Diagram with the Problems of Business Growth
Businesses are faced with many challenges when they grow, especially if they grow inorganically
The Problems Caused by Business Growth and Possible Solutions
Problem
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Explanation
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Solution |
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Poor communication
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- Longer chains of command and wider spans of control for managers may lead to slower decision-making times and inefficiency
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- Use the latest communication technologies, such as instant video calls, to improve communication between managers and workers
- Decentralisation may help to delegate decision-making
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Larger firms are harder to control
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- As a business grows in size, it can experience diseconomies of scale such as poor co-ordination of resources
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- 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
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High costs & cashflow problems
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- 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
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- 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
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Difficulties of mergers/acquisitions
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- A culture clash may occur if a merger or acquisition takes place between two different firms due to different management styles
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- 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'
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