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Chapter 4: 5DQ (page 405)

Rapid corporate growth in sales and profits can cause financing problems. Elaborate on this statement

Short Answer

Expert verified

Rapid expansion may appear like the business owner's ideal scenario, but depending on its pace, timing, and management, it may be more harmful than beneficial. The company will be under a lot of strain due to its rapid expansion, and any of these pressures could trigger other stresses to fall into place. It will be easier for the management team to identify and address rapid expansion's drawbacks if they understand it.

Step by step solution

01

 Financing problem

A sudden surge in sales may result in a sizable number of payables due before the business receivables are collected. Credit can become more expensive if a company uses it to finance an expansion because it can affect its credit score. Higher interest rates reduce your profits.

02

Resource drain

The company's manufacturing, labor, and administrative resources will be strained as they try to increase sales. As a result, there may be issues with team member morale, turnover among staff members who are overworked or underpaid

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