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Value Creation Blog

What Is Growth? - Cash Flow Management

Posted by Alexa Prenovitz

growthIf someone asks you how you are going to grow your business I bet your answer will be explaining how you’re going to grow sales. For most that’s the answer. Sometimes it makes sense to look at another option. Instead of growing sales how about growing profits?

Does it always make sense to make your business bigger?

I don’t think bigger is always better and you shouldn’t either. If you work for a publicly traded company growth might be the only mantra that counts. If you own your own company I can promise you that it doesn’t.

The challenge that you have is two things happen to businesses:

1. They grow.

2. They shrink.

Growing doesn’t necessarily mean sales growth. It could mean profit growth. Think about the possibilities that only focusing on profit growth might have on your business.

If you’re not happy with your profits is ‘more sales’ always the answer?

I remember that when I first went into business I only focused on sales growth. I thought that if my sales got bigger than my profits had to get bigger. I was wrong.   Just because we grew our sales didn’t mean our profits would also grow. In fact, because of fast growth our profits fell, not a little bit, but like a rock.

There are lots of times where sales growth will also mean profit growth. There are also times where sales growth could sink your company. Sometimes too much of a good thing isn’t such a good thing after all.

Instead of maximizing sales think about maximizing profits.

For lots of business owners growing profits makes a lot more sense than growing sales. You might have a business where you’re completely happy with how hard you work, how many people are in your company, and the geographic area your company serves. If this sounds like you doesn’t it make more sense for you to focus on growing profits?

You have a great opportunity. You can start to let your unprofitable customers go away and focus on getting new and more profitable customers. You can start testing what the limits of profits are in your company. Most companies I’ve looked at don’t know what their upper limits of profits are. They’ve never really tested it.

Understand your goals.

Like all things in life understanding what will make your life better is really the key. If having a really big business is what makes your life interesting and fun, then go for it. If having a life where you’re not focused on business all of the time is attractive then focusing on profits and not growth could be your answer.

The great thing about owning your own business is that you get to decide what’s important for you. I think that asking the question, “Do I grow profits or sales first?” is a good one. It’s one that can set you on a path you could find interesting.

Watch out for un-intended results.

The challenge with growing anything is un-intended results. If you grow your sales quickly you could find that you run out of cash. Growing sales is really expensive. If you concentrate on growing your profits and don’t pay attention to customer push back you could find your sales drop. There’s a balance you want to achieve. Paying close attention to what you need for sales and what your costs are as you grow is a key to long-term success.

But first, start by figuring out which is more important for you, a bigger company or more profits?

We have a special report on what we call Four Tiered Budgeting. This allows you to see potential results from focusing on sales growth and or profit growth. To get this report, click on the button below.

4 tiered budgeting

Topics: cultural change, for business owners, value creation, Cash Flow

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