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How to grow your profits along with your business

Posted on: March 12th, 2013 by Walid Abou-Halloun
Categories: Business. Tags: Profit.

How to grow your profits along with your business

You need to make money to thrive. It may seem glaringly obvious, but many businesses get so caught up chasing other objectives, like growth, reputation or status, that they forget about this most important performance measure of all: profit.

Of course other goals are important, especially growth. Taking on more staff, moving to bigger premises, signing up more clients – these are all exciting, high-profile steps in building your business, and it’s true that you probably won’t grow your profile or your profits without taking them.

But it’s all too easy to lose sight of profits while chasing growth. Yes, you have to take risks and invest money in progress, but the danger lies in making decisions without research or long-term strategy. Unless you know where you are going, and have measures in place to monitor your financial performance, you could end up running out of cash long before the extra profits roll in.

The bottom line is, investment decisions should be based on sound financial projections. A large office or store-front in a highly prominent street may increase the profile of your business and bring more potential customers through your door. But will that actually translate into a sufficient increase in income to justify the expense? With so many customers now using the internet for research, might the money be better invested in smaller, less prestigious premises somewhere else and a far higher digital marketing budget?

New business should be sought with the same caution. Of course you need to attract more customers if you’re going to sell more products – but do more customers in your door really translate to more money in the bank? Again, it’s all about strategy. If your business model is all about volume then new business is going to be a key factor in your success. But if you offer an ongoing service and market yourselves as a high-end specialist who invests care, time and effort in providing the best possible service, then overloading your books with more clients than you can manage will be counterproductive.

Growth is likely to put pressure on cash flow, so it’s likely you’ll require additional funding. You should take great care when selecting a funding source, again aligned with your strategy. A good long-term option may be to seek investors in the equity of your business, but this will mean having to share all future decision-making, so you definitely need to exercise caution in selecting potential business partners. Unless they have the same goals as you, conflict and indecision in the board room could rapidly damage your business. More straightforward, shorter term options for bolstering cash flow while your business grows, especially in today’s low-interest financial environment, include banks loans, overdrafts or factoring.

The simple key to healthy growth is remembering that first and foremost, your business needs to make a profit.

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