At HJS Accountants we can provide businesses in the Southampton area with assistance and advice on a wide range of business issues. Here are some issues to consider when your business is growing...

In the pursuit of improved profitability you might be forgiven for thinking that any kind of growth is desirable, but in reality there are two types of growth - healthy growth and unhealthy growth.

You can tell whether your growth is healthy or not by looking at your profit and loss statement or at your balance sheet.

From your profit and loss statement, calculate the percentage growth of sales and the percentage growth of earnings. If sales are growing faster than earnings, this is a sign of unhealthy growth. The bigger the gap, the more unhealthy the growth.

Alternatively, from your balance sheet, calculate the percentage growth of key asset categories - debtors, stock, and fixed assets such as equipment. If the percentage growth of these categories combined exceeds the percentage growth of sales, this is an indicator of unhealthy growth. Again, the bigger the gap, the more unhealthy the growth.

The indicators of healthy long-term growth are:

  • The percentage growth in earnings is keeping up with or exceeding the percentage growth in sales
  • The combined percentage increase in the key asset categories is less than the percentage increase in sales

Growth in sales can look impressive but if it is not matched by a corresponding increase in profitability it can conceal underlying problems such as:

  • Inadequate cash flow
  • Unhealthy stock levels
  • Too many debtors

Sooner or later, these problems will surface as dissatisfied customers, demoralised employees, strained systems and controls, and stressed-out owners.

If the root causes are not addressed, what started out simply as a problem of rate of growth can become a question of survival.

If you are in the Southampton area and are looking for support and assistance from experienced accountants and business advisers, contact HJS Accountants.

Southampton Office

12-14 Carlton Place
Southampton
Hampshire
SO15 2EA

Tel: 02380 234 222

Winchester Office

6 Charlecote Mews
Staple Gardens
Winchester
SO23 8SR

Tel: 01962 842000

Reading Office

3 Richfield Place
Richfield Avenue
Reading, Berkshire
RG1 8EQ

Tel: 0118 9511 115

London Office

90 Long Acre
Covent Garden
London
WC2E 9RZ

Tel: 0203 470 0777