A small business start-up needs several years to stabilize; after that there should be a steady measurable growth. There is no normal growth rate that applies to all businesses; studies have shown different growth rates. For example, a high tech business into today’s environment usually shows a much faster growth rate than a low tech firm.
Let me define a stabilized firm:
- It has defined a market need.
- It has a product or service that will satisfy that market need
- Is has built an organization that can deliver the product or service on a day to day basis
- It has a solid accounting system in place with budgets and monthly status report
- It reviews and updates its business and marketing plans every six months.
Once a business has stabilized, a minimum annual growth rate should be between 12 and 15% a year. At 15% annual growth rate a company will double its revenue in approximately 5 years. My criterion for growth is based on bottom line profits, not sales revenue.
A fast growth business is one that grows between 15 and 25% a year. At 25% annual growth, revenue will double in approximately three years. Some firms have experienced an even faster growth rate of between 25 and 40% after stabilization has been reached. In my opinion, a growth rate over 40% can become a management problem. In many cases the basic business fundamental are ignored and failure is the next step. (I can think of several firms, Osborne Computers and People Express that did not survive due to their “rapid growth”).
Another factor that influences the growth rate is the total company revenue. As revenue grows there are new concerns such as staff, management issues, delivery of products and services, etc. Centralized control usually is replaced by “department heads” and the company needs to re-invent itself in order to once again stabilize itself.
My aim with this blog is to stress both the importance of annual growth and of maintaining the stabilization of the company. as a business coach I stress the fundamentals but at the same time, some of my clients have experienced higher annual growth rates when the opportunity has presented itself.
When the pace of change outside an organization becomes greater than the pace of change inside the organization, the end is near. John R. Walter (Former President AT&T)
Nick J. Petra CFP Let Strategic Duck help stabilize your firm and increase your growth rate
Make it a Successful 2013, firstname.lastname@example.org