24th July, 2015
People tend to hold misconceptions about the benefits of business growth that, if not overcome early, can end up seriously damaging a business’s long-term viability. Here are some common myths and how to avoid getting caught up by them.
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 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!”
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.
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:
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.
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.
We see it often – massive fit-outs of business premises, fortunes spent on new equipment etc. Business owners get excited about creating a fantastic product or service, but forget to tell the market! Sales don’t grow quickly enough to fund the extra costs outlaid and cash flow squeeze becomes an issue. Marketing is often not the strong point of business owners and they don’t have the funds to employ a marketing person.
Business owners often fall into ‘The Founder Trap’ (a term coined by author of the E Myth Michael Gerber). It’s when a business owner thinks they are the only person that can do things and doesn’t trust anyone else to help. The problem with this attitude is that other aspects of your life suffer e.g. your sanity, your health, your home life etc. When you start off in business it’s obvious that you have to be ‘jack/jill of all trades’ and do anything. When you decide to grow though, you need to take a completely different view of things. You need to become a business manager and not just a ‘doer’.
CFO On-Call works with business owners to achieve successful growth. For details visit www.CFOonCall.com.au