Profits or growth?

money, accounting records and a calculator

Owners can face a dilemma in deciding whether to expand. Expansion is risky. There's always the chance that any expansion plans can fail and result in losses rather than profit. Owners are then worse off than before the growth of the business.

The risk of expansion means that some owners are reluctant to chance funds. They opt instead to stay small and earn a relatively risk-free profit.

There is potentially a major drawback to avoiding growth. Small businesses can be at a cost disadvantage compared to their larger rivals enjoying economies of scaleeconomies of scale: When big companies can produce things cheaper than smaller companies. There are two reasons for this. Firstly, they can buy in bulk, so can negotiate with suppliers to pay less. Secondly, the more a company produces the lower the average cost per product will be of overheads (fixed costs, such as buildings).. As small firms cannot compete with the low prices set by their larger rivals, they have to compete on service or quality.

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