You can’t grow yourself to profitability

Photo: iStock.com/MicroStockHub

Growth is a natural success metric. You see it in how countries measure their GDP, in how companies show their investors they are a worthwhile investment and in how upwardly mobile employees show their ability to handle more responsibility.

Growth creates opportunities for everyone … unless you fall prey to the misconception that growth will solve your profit problems.

The unspoken hope is that top line sales growth will trickle down to bottom line profit growth. It ain’t necessarily so. If you want to grow profits, you should focus on that goal directly, instead of hoping that sales growth will translate into profit growth.

Sales may cover up a multitude of sins, but only a focused profit improvement plan will fix them. In fact, a strategy of sales growth may actually amplify your problems and make them worse:

• If you have cash flow challenges, your growth will suck up even more cash.
• If you are challenged by employee recruiting, accelerated growth will mean you have more open positions, and your quality will likely decrease.
• If you lack company discipline, the chaos will get worse as you juggle more clients, more middle management and more equipment.
• If you lack effective systems, they will easily get outstripped as you grow and ultimately break down.

Text: Jeffrey Scott, Design: LM staff

Are there exceptions? Yes, sometimes an underutilized asset or overhead position will benefit from increased sales to optimize overhead. Don’t let this exception sway you from tackling profit challenges head-on.

When you focus on creating and implementing a profit improvement plan, you will enjoy many benefits:

• Employees will better understand what it means to think and act like an owner.
• Your balance sheet will improve.
• Employees will be able to improve and grow in their positions.
• Overall business risk will be reduced (depending on your sales mix).
• Systems will be improved, and critical systems will be added.
• Employees’ creativity and problem-solving skills will be engaged, and morale will increase.
• Customer satisfaction will usually increase due to fixing inefficiencies in your systems.
• Sales growth will ultimately add more profit and value back to the organization.

To stay competitive, you must keep growing in all senses of the word. However, a focus on sales growth is never a guarantee that your profit will grow, whereas a focus on profit growth will almost always create revenue growth and strengthen your client and employee base.