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Too Much Revenue Can Put You Out of Business

Six Keys to Sustainable Business Growth

In 25 years of advising business leaders on growth, I’ve seen (and helped to correct) many mistakes that can be avoided to ensure that your growth is sustainable. Here are a few examples of mistakes:

  1. Expanding into a foreign country without realizing the significant costs to operate and that create a cost disadvantage and burn up cash.
  2. Initiating a growth strategy without adequate resources to support the necessary learning curves, mistakes and losses resulting in drains on other operations.
  3. Taking on new business outside of your geographic area where you can keep an eye on things, or outside your sweet spot of project size, which increases risks.
  4. Making decisions based on ego instead of economics.

Many mistakes are caused by the myth that more revenue is better. More profit is better. More revenue can put you out of business.

The root causes of the common mistakes that I’ve seen are:

  1. Lack of a clear strategy which results in trying to be all things to all people and doing anything for a sale.
  2. The brand is not specific and fails to attract the right customer who is willing to pay the right price.
  3. Pricing is based on competitors with lower value and lower costs and not on the higher value that the business offers, resulting in lost profits.
  4. Delivery is based on first in, first out, and not prioritized on which customers are most valuable and which products or services have the highest margins. The result is you cannibalize yourself.
  5. Failing to know your numbers, including:
    • actual margins on each customer, product, and service
    • daily flash numbers including daily sales, production, and cash position
    • total days to cash.
  1. Minimizing taxes instead of building your balance sheet to support leverage, which will accelerate long term growth.

The six keys to sustainable growth are: strategy, brand, pricing for profit, treating customers differently, knowing your numbers, and strengthening your financial foundation.

Strategy is defining the value you provide to your ideal customers. It’s not based on your methodology. It’s based on the value and results you create and how you improve your customer’s condition.

Your brand reflects your quality and your customers’ perception of your value and results, even if you’re not measuring them. Ask you customers how you’re meeting their needs, on a scale of one to ten, and then ask for more specifics. They’ll tell you what they want.

Pricing reflects your quality and value, as everyone knows “we get what we pay for.” My favorite quote is “you only cry once when you buy quality.” When you understand—and deliver on—all the value factors your customer wants, they’ll reward you with the price you deserve.

All customers are not equal and they do not deserve equal treatment. Your best and most profitable customers need access to your best people, products, services, experiences, and proactive care.

When I’m working with larger mid-market companies with more than $50 million in annual revenues, they know their numbers. They know their margins by line item and how much each customer is worth. Knowing these numbers, and having control over DAILY sales, production, and cash flow, will support your growth.

Finally, and the most common weakness in smaller companies, according to every banker I know, is the business focusing on minimizing taxes. This reduces (or eliminates) the retained earnings on your balance sheet. Bankers need healthy balance sheets and are happy to lend up to double your retained earnings to support your growth.

How can you implement these factors to strengthen your sustainable growth?

Stop minimizing taxes and you can generate an ROI of more than 1,000% (yes, 10X) on the taxes paid, capital retained, leverage gained, and working capital put to growth. Yes, 10X ROI.

Chasing revenues alone is like a dog chasing its tail: fun for a while but futile in the long run. Focusing on sustainable growth and profit is much more effective at creating business wealth for you and your shareholders.

Phil Symchych CPA, CA, MBA is celebrating his 25th year in business. He is the president of SME Business Wealth Builder Corporation and helps mid-market companies to grow profitably, increase value to customers, and build business wealth for shareholders. He can be reached at 306.992.6177 or Phil@SMEWealthBuilder.com.