Five myths about business growth

Five myths about business growth & how to overcome them

Bigger is better!

When people think about business growth, they often focus on sales.

If you look at industry benchmarks, though, you’ll find businesses in higher sales brackets aren’t always the most profitable. We see businesses with modest turnover that achieve good profits.

As soon as a business grows, overheads can get out of hand and the extra sales get eaten up and profit is worse than before.

The question is, what do you want to grow and why? Sales growth without a corresponding increase in profit is a waste of time and causes headaches for business owners.

There is an old saying

Sales are vanity
Profit is sanity and
Cash is king!

Solution

To achieve growth in profit and sales, you need a plan to keep things on track. A budget is a great way to do this.

Set sales targets with marketing and sales plans to support them.
Set cost targets – you may be able to get better pricing when purchasing volumes increase and achieve better gross profit.
Set overhead targets – consider extra resources required to deliver increased sales and have operations plans to support growth.
Report on profit & loss monthly with a comparison to budget, so that you can quickly see if things are off track and fix them immediately.

Sales growth without a corresponding increase in profit is a waste of time and causes headaches for business owners.

Growth will solve cashflow problems

This is probably the biggest and most dangerous myth of all! Why? When you make a sale you need cash to fund that sale i.e. you need to pay for

Goods or work on projects
Overheads to run business
Credit for customers paying on terms
Stock waiting to be sold

If you need cash to fund sales, it follows that the more sales you make the more cash you’ll need. Growth without considering this fact brings many businesses undone. They go ahead and agree to big contracts or sales without considering funding to achieve growth.

Solution

Prepare a detailed cashflow projection including extra sales and corresponding cashflow requirements.
Consider how you’ll fund extra cash required.
Speed up collections from customers on terms.
Ask customers for deposits
Seek longer credit terms from suppliers or time payments to suppliers to be after receipts from customers.
Borrow from a lender e.g. bank
Equity – sell shares to provide extra capital

Staff will love it!

Growth creates great opportunities for staff to progress their careers. If resources aren’t properly considered, though, and plans put in place to handle growth, it can cause more headaches for the business owner by creating unhappy staff, who have pressure and stress.