How do I grow?
How do I grow?
The simplistic answer is one customer at a time. The real answer requires some work. Do you have an existing customer base? Are all those customers buying everything from you they need? Are you pricing for profitability? Do you know which customers generate the most profit for you? Do you have multiple lines of business or just one product/service? Where do you get new customers? How much does it cost to get each new customer? How much do you want to grow?
There are a lot of questions to answer and information (financial, strategic, operational, and customer-based) to generate. Some businesses can grow “organically” just by operating their business due to markets, location, and a number of other external factors. But even those organically growing businesses eventually have to step back and examine their business and reasons for growth, because growing top-line revenues may not always (and often does not) translate into the same rate of growth in profits.
You don’t want to simply grow your business. You want to grow three key components: revenues, profits, and cash! Without taking cash-flow implications of growth into consideration, the fastest-growing business can in fact end up closed because it couldn’t pay the bills.
Finding the right rate of growth for your business, one that maintains financial targets and high-quality customer service and products is the real goal. Smart growth requires:
- Knowing the composition of current revenue, profits, and costs
- Timing of cash flow from sales
- Calculating the cost of expansion (staff, equipment, etc.)
- Setting realistic goals for revenue, profits and cash flow
- Controlling costs while growing sales
- Identifying the most profitable prospects
- Focusing on doing the right things at the right time with the right systems in place
One of my previous clients came in as a result of a highly successful tactical marketing campaign. The marketing push was so successful they had customers lined up out the door (figuratively). The problem? They did not have the systems in place to serve the new clients, nor to maintain quality and delivery to the existing clients.
The company started at just over $1 million in sales, and in the short term they added another $1 million in sales. But when I got the call, their sales were less than $500K. What happened? It doesn’t matter how many customers you have in the short run if you can’t serve them well.
Growth requires a strategy for not only getting new customers, but to maintain quality of product and service, which requires financing for expanded capacity to serve. It also requires skilled timing in adding staff, preparing new staff to serve your customers, and ensuring that everything is in place at the right time (not too early or too late). Move too early and your extra expense without the extra revenue can close your doors. Move too late and dissatisfied customers, damaged reputation, and lost sales are sure to follow.
Growth requires a sound plan and good timing. One of my current clients took proactive action to make a plan to grow. Not knowing the financial picture beyond the tax-formatted financial statements meant our first step was to calculate line- of-business profitability, then identify revenue, profit, cash reserves, and cash for growth targets. From the growth targets came a capacity evaluation: How much business could the existing team and operations support? How many people needed to be added? What type of skills were needed? How would everyone be compensated?
From building a financial model to understand profitability to developing incentive compensation, job descriptions, and other tools and insights, the client is now in the process of setting 2015 goals and hiring plans. The targets we worked on early in 2014 were exceeded. The tools provided on-going insight and an ability to make changes to operations based on financial results. The team is engaged and eager to go from a life-style pay the bills company to one focused on growth and expansion.
One year can change your business and enable you to grow smartly with more revenues, profits, and cash. Are you ready to grow?
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