Growing too fast: the dangers of overtrading to entrepreneurs

Growth is considered the hallmark of success for any entrepreneurial business. Therefore, entrepreneurs are highly growth inclined individuals. Entrepreneurs regard especially rapid growth as important to create wealth for themselves and society, as well as to grow the economy as quickly as possible. Although growth can be an entrepreneurial business’ biggest ally, it can also become an entrepreneurial business’ worst enemy. Many entrepreneurial businesses have fallen because of rapid growth, especially if the growth was unforeseen and unprepared for. Business decline and business failure due to rapid growth is known as overtrading. This paper aims at exploring this phenomenon, so that a higher level of knowledge regarding its symptoms, potential dangers and impact on the entrepreneurial businesses can be obtained. This research is important to entrepreneurs to enable them to diagnose overtrading, and realise the impact and effect it might have on their businesses. This paper examines the following propositions: • Proposition One: Overtrading always results in entrepreneurial business failure; • Proposition Two: Overtrading only occurs in new (entrepreneurial) businesses; • Proposition Three: Overtrading can be understood as a core evaluation criterion for entrepreneurial business failure. These propositions are examined because there is very little research on this topic despite the fact that overtrading is widely recognised as at least a contributing factor to business decline and failure. The possible outcomes of the study are that sufficient support can be found that overtrading is a definite cause for entrepreneurial business failure and that especially new entrepreneurial businesses should guard against overtrading, since they are the ones that are in the start-up phase. Therefore, overtrading can be cited as a core evaluation criterion for entrepreneurial business failure. The study is a literature research regarding business growth, too rapid growth and overtrading, and business failure.