Dealing with Management Overtrading

High growth businesses are often overtrading in a much wider sense than purely in terms of a “funding gap”, in that the level of business has grown beyond the ability of the existing systems, processes and often people, to support. Very rapid growth can very quickly stretch a small management team, however capable, as the scale of the operation can quickly run out of control.

And some growth that businesses have to deal with can be truly substantial. One client in a niche area of temporary staff saw rates of growth of over 10% per month. In another case, through winning a single large contract a business saw its turnover go up by 300%, more or less overnight.

And this type of substantial growth will inevitably call at some point for a step change in the management approach required. A sole entrepreneur may well be able to deal with ten, twenty or more staff, but by the time the organisation is ten times the size, the business will, if it and the entrepreneur are to survive, need to have moved to a formalised management structure, with all that will entail in terms of delegation of powers, job specifications, management information and reports.

In addition, as well as balancing the present and future needs of the business, the management of a high growth business will need to try to balance the pace of development and change across each of the different areas of the organisation, so the whole of the business moves forwards as simultaneously as possible across all of its functions.

As an example, if a company employs 50 people and is looking to double its turnover, as sales expand it will have to expand the fulfilment side of the business, production and delivery, as well as ensuring it has sufficient financing facilities to avoid financial overtrading. But it will also have to look at how much its back office administration may need to expand as well to cope with the extra paperwork, perhaps its accounting systems may need upgrading to handle the increased functions, perhaps it needs more staff, who will need to be recruited and trained. As staff levels rise, it may need to expand the management team to include a dedicated personnel manager to look after this function of the business. With the increased numbers may come a need for new premises, and so on.