27 WHY SUSTAINABLE GROWTH IS IMPORTANT New equity must be sold, or new debts taken on; dividends might have to be reduced, or profit margins increased. Companies are reticent to take such steps due to high costs, negative impact on company stock price (where the reduction of dividends is concerned), and numerous other factors. Growing too rapidly, therefore, presents a host of problems, and keeping an eye on SGR helps mitigate those risks. Sustainable growth is important for a number of reasons. Determining a sustainable growth rate takes some trial and error, but generally, trying to maintain a too-high SGR for an extended period creates problems. Companies eventually reach a sales saturation point as they become more profitable, and if they want to continue to grow, they must begin offering new or distinct products and services. If they grow at too rapid a rate, or begin offering services that decrease profitability, they may be sent back to the drawing board for new financing. On the flipside, if companies grow at too slow a rate, they risk stagnating, or only covering expenses rather than turning profits. Economists and researchers claim that a company’s growth strategy and growth capability are crucial to consider if sustainable growth is to be achieved. Insufficient focus on one or the other will result in losses over the long term, even though there may be short-term gains. But in any realm, from business to building, true sustainability is fundamentally about the long haul. INSIGHT | Doing business
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