Every business owner wants to grow, but not every business is ready.
21 August is recognised as World Entrepreneurs’ Day to acknowledge and celebrate the hard work and dedication of entrepreneurs and business owners worldwide.
In South Africa, small and medium enterprises (SMEs) play a significant role when it comes to economic growth and providing employment. However, most of these businesses fail within their first few years due to several challenges, such as expanding too quickly.
Nicole Swart, Managing Director at Merchant Capital, emphasises that growth should not be a leap of faith, but rather a strategic move grounded in data, operational readiness and sound financial planning.
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Growth is exciting
She says that every business owner wants to grow, but not every business is ready.
“We have seen entrepreneurs double their stock, hire additional staff, or open new branches after just a few strong months, only to find themselves overwhelmed.”
Swart notes that although growth is exciting, it is also costly. Without the right foundation in place, expanding can unravel the progress entrepreneurs have worked = hard to achieve.
She gives three questions that entrepreneurs should ask themselves before expanding:
1. Is there enough consistent demand, and will it grow if you offer more?
“Many SMEs mistake a short-term spike in sales for long-term growth. Whether it is a seasonal bump, a tender, or a once-off corporate order, short bursts of revenue can be misleading.”
She emphasises that entrepreneurs need to look beyond the moment.
Entrepreneurs should verify consistent customer demand before expanding, as it serves as a key indicator of readiness.
“If your customers are returning, if your base is growing, and if there is a clear appetite for expanded offerings, then it might be time to scale. But this decision should always be rooted in real trends and customer behaviour, not gut feel alone.”
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2. Can your infrastructure support growth?
Swart adds that scaling places new demands on people, processes and technology.
“Even businesses with strong demand can struggle to deliver if their systems are not built to cope with higher volumes.”
She encourages SMEs to identify their first bottleneck. It might be obvious, like needing more space. But it could be more subtle, like a manual booking system that cannot handle growing volume.
The key is to plan investments in the right areas at the right time. Not everything needs to be upgraded at once, but weak points must be acknowledged and prioritised.
“A short-term funding solution can help business owners bridge this transition, providing flexible capital for infrastructure upgrades that support sustainable growth.”
3. Can your cash flow handle the growth gap?
“Perhaps the most overlooked aspect of expansion is timing,” she says. Growth requires spending upfront on stock, marketing, equipment, or new hires, while revenue from that growth often lags behind.
“This is what we call the growth gap. Even small delays in customer payments or supplier deliveries can create a cash crunch at a critical time. And one missed salary or supplier payment can hurt your reputation.”
To prepare, she advises SMEs to model their cash flow scenarios, cut unnecessary costs in the lead-up to expansion, and consider offering early payment incentives.
“For many businesses, short-term finance can play a key role in bridging this gap.”
NOW READ: Checklist before expanding your SME
