UK: Small Business Growth

Last Updated: 12 December 2012

As with many things in life, size isn't everything. You may be better off, both financially and emotionally, staying as a small business.

Growing your business may make you wealthier and give you increased status (if that's what you're after). But growing a business involves plenty of difficulties that should give you pause for thought:

  • Increased borrowings. You'll probably need extra short-term funding to pay for more office space, extra computers, more stock and so on.
  • Increased staff. Your abilities as a manager of people will be severely stretched as you start to increase the number of staff. You will have to learn new skills of delegation, dispute resolution and motivation.
  • Where's all my cash gone? Growing businesses can often experience rapid increases in sales and profit, but show a reduction in cash generated. At its worst, this reduction in cash flow can lead to insolvency and business failure.
  • Extra stress. There is so much more to do! More personnel issues, more poorly paying customers, more crashing computers – they all add up to more stress.
  • More bureaucracy. As the business grows, so does the pile of paperwork and you may need to invest more of your scarce cash in bigger and better systems in order to deal with it.

If you relish the challenge of all of the above, then go for it. But if you're wondering whether or not you can face it, don't worry. There's absolutely nothing wrong with continuing to be a successful small business.

Expanding your problems

Spending your way out of trouble is a very high risk strategy. Nevertheless, people often think that expansion will solve the problems of a business that is making a loss. For example, you might think that opening another branch or shop will increase your profitability because:

  • you'll achieve economies of scale by negotiating lower prices from your suppliers (you'll be buying twice as much stock, remember)
  • there'll be two shops paying for your salary.

However, you're unlikely to achieve significant economies of scale until you have your seventh or eighth shop. And if your business is working on such thin profit margins, you should do some more fundamental analysis first – for example, review your product mix and your pricing strategy.

Secondly, the fact that your salary will be paid by two shops may be an illusory benefit. If you can only spend half your time at each shop, perhaps you'll need to employ full-time managers to cover in your absence. If you don't, it's unlikely that the shops will operate at full efficiency.

It's best only to expand if you're already running a profitable business. If you're making a loss, focus your efforts on turning the business round first.

A solid base

Don't think about expanding until your business systems are sound. Make sure that you address the following before you contemplate growth:

  • Human resource management – that's contracts of employment, job descriptions, induction procedures, training programmes, staff appraisals, employee records, an efficient PAYE system and a clear organisational structure. It may be appropriate to be approved by the Investors In People quality standard.
  • Financial controls – you should consider preparing annual budgets and monitoring the performance of the business against the pre-set targets.
  • Operational controls – that is, IT systems, backup and support, quality control and regular supplier reviews.
  • Marketing – how are you monitoring the success of different promotional methods? Do you have a detailed marketing plan for the year?
  • Planning – have you planned your expansion properly? You need to monitor the progress of these plans, and it might be useful to find a mentor or advisor to help you with your expansion.

You may think that you can expand without addressing the above, because you run your existing business that way. However, it isn't a coincidence that all big businesses have adequate systems and many small businesses don't. If you want to go from one to the other and stay there for any length of time, you'll have to accept this and embrace it.

Running out of money – overtrading

One of the most common causes of business failure actually occurs when you think you're doing brilliantly.

Rapidly growing businesses often experience substantial increases in sales and profit, but a decrease in cash flow. This decrease is known as overtrading and is caused by two things:

  • A tendency to grant attractive credit terms to entice big new customers. This increase is not matched by an increase in credit terms from suppliers and can result in an acute short-term cash flow crisis.
  • The requirement to invest in new assets, such as premises, vehicles, machinery, computers and so on.

If you are having problems, then using the services of a debt factoring company is just one of the ways in which you can address them.

Diversifying into something you know nothing about

Very few of us are multi-talented. What makes a successful architect open up a restaurant, or the recruitment agency move into technical consultancy? And why do so many Brits with no previous experience want to move to the Mediterranean to work eighteen hours a day in their own bar? Is it because they want to make more money, or simply that they're bored?

Big businesses diversify all the time. Richard Branson's Virgin group has established many unrelated businesses. However, Virgin has the benefit of a hugely strong brand, which gives each new venture a style already recognised and appreciated by customers.

As a small business, without a strong brand, you should think long and hard before you diversify into unknown territory.

If you're bored and in need of a fresh challenge, perhaps you should consider expanding your business into e-commerce, buying one of your competitors to increase economies of scale, or, better still, taking a sabbatical to go and write that novel.

Start doing the things you hate

"But I like making clay pots and I hate managing people."

It's easy to forget that growing your business means spending more time managing than doing. Some people like this; others end up missing their craft and bemoaning the fact that they have to deal with all the hassles of running a larger business:

  • managing people
  • entertaining clients
  • schmoozing the bank manager
  • dealing with the auditors.

If, like so many others, you find that managing finance and people has turned out not to be one of your greatest strengths, then you have the choice of either going back to being a smaller business or getting help and training in small business management.

Alternatively, you can employ the services of a business mentor or a non-executive director. They can help to brainstorm some of the strategic issues and allow you to spend a bit more of your time going back to doing the things that you enjoy.

Where's the exit strategy?

Finally, if you're planning on retiring in the next three to five years, you need to think about your exit strategy now.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.