24 Apr Business Alchemy 101 Lesson 14–Affordable Growth Rate (Part One)
Affordable Growth Rate, or AGR, is best illustrated with an elastic. Elastics are typically used to hold things together. The key characteristic of an elastic is its stretch.
Similarly, AGR is used to hold a business together and the characteristic it measures is how far a company can stretch.
As a business increases it's sales, it will also need more product and/or hours to provide the goods and services. Imagine this as an ever increasing stack of books that you will need to put an elastic around.
So the question is regarding the number of books that you can hold together with an elastic, or how far the elastic will stretch before it breaks. This is the question measured and answered by AGR.
AGR is one way to measure how much growth can be supported by the money and assets that the company currently has available to them in the form of equity before having to pursue financing from outside sources such as from loans or an additional sale of stock. This sustainable growth is exceeded when the elastic band breaks.
The elastic band may break at different percentages for different companies so it is important to measure this ratio frequently and compare it to performance in the past. This of course is easily done with quality bookkeeping and as you know...
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