Growing your small business is one of your biggest concerns. You don’t want to become stagnant in your growth. If your business doesn’t expand, you may run into the danger of becoming irrelevant.
However, growing too fast can also cause problems with operations and your business’s finances. How do you calculate sustainable growth, and what does that do to your small business? In this article, you’ll learn more about growing your business at the right rate and how to sustain the new level of growth.
What Is Sustainable Growth?
Sustainable growth is the rate of growth at which you can make the maximum number of sales without supporting that growth by borrowing money. Some business owners will take out bigger loans to fund their growth, setting you back to where you originally were.
Ideally, it would help if you grew with the revenue coming in and not use debts to support the growth. A non-sustainable growth typically amounts to short-term success that fails in the long term.
How Do You Calculate Sustainable Growth Rate?
Calculating your sustainable growth rate can give you valuable information about where your business is right now and what you can expect in the future. The first method to calculate it is your Return on Equity. The second is your divided-payout ratio.
You can consult a financial advising team or virtual CFO to get advice and help with bookkeeping. You can use your ROE and divided-payout ratio to understand your sustainable growth rate.
How Do You Apply Sustainable Growth To Your Business?
Before you can apply sustainable growth to your business, you’ll need a small bookkeeping team to obtain the information on your assets. Then you’ll need to determine the best growth rate for your business and what can increase your company’s growth. These factors will help you grow your business at the right pace.
You can get help with several complex issues that will help your business grow sustainably. Online financial advising through companies like Financial Optics lets you:
- Outsource your bookkeepers
- Outsource your accounting services
- Gain advice from virtual CFOs
Combing those resources, you’ll be able to learn what your growth rate is and how to maintain its sustainability.