Entrepreneurs have different preferences towards the growth of their businesses. Some desire rapid growth, others pursue manageable and reasonable growth while others prefer not to grow their businesses at all but only to maintain the current size of the business.
Growth of a small business can be incredibly challenging if it is not planned for. One of the reasons for this is due to the fact that growth usually requires additional financing which has to be obtained before the additional profits appear as cash inflows.
This growth problem is further exacerbated due to the difficulty of obtaining external financing. Business may need additional financing to hire more personnel to handle increased sales and to buy extra inventory and raw materials. Therefore, the situation may occur where a rapidly growing business is profitable but has cash-flow problems. This is referred to as a “growth trap”.
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