Most businesses start with the idea of earning profit on the money they have invested, growth comes next, when the entrepreneurs have a long-term game plan in place. Profit is the first source of investment for further growth in a business, this will lead to further growth – which if done right, will lead to more growth, and so on in a cycle.
What is Growth and Profitability?
Profitability is a measure of how much money the business is generating after taking into account all expenses. Put simply, the difference between revenues and expenses is the profit. This money can be used for further growth and expansion of the business.
Growth is crucial for the long-term survival of a business. It also aids in acquiring assets, attract new talent, and to fund further investments into the business. Business growth is a function of the business lifecycle, industry growth trends, and the entrepreneur’s desire for equity value creation.
Growing Profitability Rather Than Just Growing
For start-ups that do not have investors or business loans, profits are the only source of capital for the running or further expansion of the business. Generating reasonable profits is possible through prudent pricing of your service / product, and by expanding your reach in the market through organic growth. Hence, the need for growing profitably.
Have ‘growth’ as a focus and ‘profit’ the main goal, by doing so when you focus on your business, you will be able to achieve a profitable as well as a sustainable business. This can help you achieve some or all of:
- Greater sustainability or resilience in the market
- Greater market dominance
- Greater buying and bargaining power
- Ability to mitigate commercial risks – e.g., through diversification
- Ability to reduce the threat of competition
- Ability to survive market fluctuations and downturns
- Ability to attract the best talent and staff
Manage Costs – Efficiently
One of the key ways to be profitable is to manage costs efficiently, and some areas to focus on are:
- Suppliers
- Finance
- Resources
- Production
- Technology
Steps for Growing Profitably
- Define your business goals & objectives
- Critically review your business
- Establish a financial plan
- Create organizational alignment
- Identify the financial resources required
- Measure, review, evaluate & course correct
When these steps are followed, likely outcomes are:
- Improve and grow profits
- Maximize the scalability of your business
- Enhance management team and organizational structure
- Attract investors and other sources of funds
- Increase business value
