The goal of any small business owner or entrepreneur is to create a profitable business. One of the best ways to do this is through growth – by scaling the business up, you’ll be able to bring your ideas, products, or services to more people, all while increasing your profits.
But growth can be tricky to navigate. Time and time again we see business owners sabotaging their growth … without even realising it.
Here are the three biggest ways you can kill the growth of your business, and what you should do to avoid them:
1. Not committing regular time to getting more clients
Keeping a regular influx of clients is vital to any successful business, and this is particularly so in a service-based business like a trade, marketing agency, or hairdresser.
However, it’s one of the first activities that goes out the window once you get busy. But without generating new business, you’ll eventually see your books dry up and all growth halt.
Set aside ‘x’ number of hours per fortnight to work on getting new clients. Stop making excuses, and focus on chasing the activities that generate the most new clients. This is one thing you may be able to outsource to a marketing agency, in order to keep your time available for growth activities.
2. Not understanding the importance of cash flow
For a growing business, cash flow is critical – cash constraints can be the biggest factor limiting growth. If you don’t have ready cash available, you can’t take advantage of opportunities, and you’ll always be chasing your tail.
Even when your business is profitable, you can still have cash flow issues that hinder growth. Profit and cashflow are two different things:
- Cashflow is the inflow and outflow of money from a business, which is necessary for daily operations, purchasing of inventory, operating costs and taxes, etc.
- Profit is the surplus after all expenses are deducted from revenue.
It is imperative you understand the inflows and outflows accordingly and how these inflows and outflows reflect the health of your company. Act on cash flow problems as soon as they occur – don’t wait until it’s too late!
3. Not setting the right profit margin
Business owners who don’t understand the true costs of their goods and services will never make enough profit in their margin to pay all their expenses and make a profit. This will seriously impact your growth as after a while you won’t have the required money to pay your expenses.
Many business owners assume that if they want to make 30% profit they simply add 30% onto the cost price of their goods or services. So, if the item costs $100, they will sell it for $130. This is wrong.
Profit margin → (Price – Cost)/Price x 100
In the example above the profit margin is 23.1%. If you wanted to make 30% profit you would need to sell your item for $143.
Markup is not the same as profit margin; margin is based on sales price, and markup is based on cost. The gap between markup and profit margin keeps widening as required margins get higher. Don’t unnecessarily undercut your margin even if it means not making a sale. You could be losing more than you realise.
As a business owner, are you letting anything stall your growth?