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The right kind of growth

Is growth always healthy?

At Numera we can provide businesses in the London 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 London area and are looking for support and assistance from experienced accountants and business advisers, contact Numera.

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Company details

020 7794 5757

Numera, 4th Floor Charles House, 108-110 Finchley Road, London NW3 5JJ

Numera is a trading name of Numera Partners LLP | Company Registration No. OC365787 | Place of Registration: England & Wales | Registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales.

About us

Numera is a newly established forward-thinking firm of chartered accountants, with over 25 years in experience of audit, accountancy, taxation and business advisory services.

We work with clients in a large variety of industries and sectors; from sole traders to multi-million pound turnover organisations. We aim to create and maintain a close relationship with our clients. By being so involved, we are able to identify opportunities for our clients as well as possible risks that our clients may be faced with.

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