Without profits, you don’t have a business.
When it comes to growth, many business owners focus on the wrong areas. Growth in turnover, growth in staff, growth in product lines. The list goes on. There is only one item I want to see growth in. Net profit.
You may well argue that growth in those other areas will deliver growth in net profit – and I accept that – but sometimes businesspeople forget about their primary purpose of being in business. You can have all the esoteric sweet grand reasons for being in business but the primary reason must be profit.
Without profit, you don’t have a business. Profit gives you the ability to change the world. Think about the Bill and Melinda Gates Foundation. It has a current endowment of $36.2 billion and has helped minimise polio and is currently turning waste water into potable water, among countless noble projects. Gates can do this because his Microsoft is profitable. OK – very profitable. My point is that in business first there is profit – everything else is second.
Growing profit is not easy. How does your environment change when you do grow? Do you need different premises or more staff? Can you find the correct staff to help you with that growth? Many times I have spoken to very small IT organisations – sometimes consisting of two partners or even as small as a one-man band – and their biggest fear is hiring their first employee.
With growth inevitably comes risk and that is part of the thrill of being in business. You take a risk when you employ someone. You take a risk when you move into new premises. You take a risk when you spend money on R&D for a new product. The success stories are those where that risk translates into profit.
When businesses grow it often means cashflow can be tight or additional funding is required. The sensible advice always says to use bank loans or an overdraft or factoring or other traditional means for financing your growth. There are times when these sources are scarce or lack flexibility.
Many business advisers tell you not to let go of the ownership of your business but that’s not necessarily the best advice. Bill Gates only owned 20 per cent of Microsoft when he was ranked as the richest person in the world. Owning a small percentage of a highly successful company can be better than owning 100 per cent of a moderately successful company.
Apart from the financial process of introducing partners to your business, don’t underestimate the value of a financial partner in the business – in particular if that partner is an employee in the business. Studies have actually found that majority employee-owned businesses typically have higher sales per employee.
I go against the general business advice and I actively encourage businesses to take on partners and share in the success of the business with people who are engaged in the business. One trait I see in almost all businesses growing well is that they make decisions.
To grow you need to adapt. You need to be nimble and make moves before the rest of the market does. If your business procrastinates or fails to make decisions it will merely keep plodding along. High-growth businesses not only predict trends but sometimes make trends.