An organisation’s success depends on its ability to grow sustainably. Business survival can be ensured if realistic growth goals are set regardless of the size of the company at inception.
Business growth is largely determined by profits, however a company that expands rapidly may end up risking its resources in the long run. In contrast, a slow-growing operation is at high risk of stagnation. Therefore it is imperative that you follow proper strategies to secure a successful business set up in Dubai.
The Sustainable Growth of a Company
In economic terms, sustainable growth is the maximum rate of growth that an enterprise can sustain without increasing its financial leverage. Sustainable growth rates of companies are currently calculated based on three assumptions:
- It is the company’s goal to sustain its capital without releasing new funds
- Shareholders want to receive a predetermined percentage of earnings
- In accordance with market conditions, business owner(s) want to boost sales.
The sustainable growth rate of a company is calculated based on its return on equity. A dividend payment ratio is also taken into account by experts when calculating the same. Overall, an organisation’s sustainable growth rate is the maximum increase in sales it can achieve without exhausting its operating funds.
How Does an Overly Rapid Growth Affect Companies?
With the rapid growth of ecommerce, the concepts of sustainability have been transformed. For instance, today’s leaders in ecommerce offer lucrative discounts to customers worldwide. Few e-tailers maintain the quality of their products and services, but slashed rates and reduced profits often force many to compromise.
The low prices and offers may attract thousands of customers, but the bad experience will drive them away and deter thousands more from visiting that same eCommerce store again.
This contrasts sharply with the sustainable growth practices discussed above. While the company’s sales skyrocket in the beginning, it ends up exhausting its operating capitals and losing paying customers over time.
Why Choose Sustainable Growth?
As a business grows, it must consider its current capital structure, dividend payment ratio, and profits that can be achieved in current market conditions. The owner of the business shows foresight by investing in sustainability.
Instead of recklessly expanding rapidly and recklessly, sustainable growth fosters long-term success.
In order to achieve sustainable growth, businesses must strike a fine balance between survival and scaling up. A budgeting practice where current resources are kept for running operations while sufficient resources are set aside for acquiring new technology and equipment is needed for true sustainable growth.
