In Pursuit of Profit
Read our expert article below or sign up to get articles sent to your inbox.
What is Growth?
For our firm in the early days, growth was not a given. In fact, we didn’t really plan to grow at all. Growth was much different in those early days. But because we had a very talented consultant group, we were able to land quite a bit of business and our team would get full. Unfortunately, at that point you have two choices – add to the team and grow organically or slowly lose market share as clients go elsewhere because you’re too busy. Now, 20 years later growth means somethings completely different. In today’s world growth for us means geographic expansion across the US. It is a very carefully planned strategy that we work very hard to execute. But our definition of growth may not be your definition of growth.
Growth means different things to different companies, and even different people within the company. To some it could mean personal growth (the ability to do something different in the firm). It could mean geographic growth or launching new product lines. For some people it may strictly mean financial growth. The discussion can also revolve around success both individually and as a firm. Typically, the most common measure or indicators of growth are:
Before you decide to grow you need to decide what growth means to the management team and other stakeholders in the company. Make no mistake, not everyone wants to grow and there can be significant risks in doing so!
The Upside of Growth
If you are evaluating whether to go down the growth path, you will need to weigh the upsides and downsides of doing so. The upsides of growing your company can include:
Companies don’t usually need to be talked into the benefits that accompany growth because the monetary rewards are enough to keep them happy. What they sometimes forget to consider are the cons that come along with those pros.
The Downside of Growth
The downside of growth is that it also comes with additional risk, which includes:
The biggest risk is that growth requires additional investment from outside investors or taking on debt. In either case you’ve now changed your company forever. Investors can be very helpful in achieving your goals but the days of doing what you want are over. They have put capital into the company, so they will not only expect a return but in many cases, you will also be required to establish new reporting procedures. They will want you to operate like “a professional company,” so you may also incur new costs such as accounting audits, system upgrades, and increased insurance coverage.
When you take on debt (especially as a smaller company) ownership will often be required to provide personal guarantees. But you will need this funding whenever you need to invest in new systems, people, and process improvement. These are all expensive but if you don’t invest in them, things will break down as you grow because what you have won’t scale up appropriately. You’ll be larger but making less money and your headaches will increase tenfold.
Another major risk is it may not work. You may be very successful offering a specific product/service or in a particular geography but when you launch the new offering or enter a new place it simply doesn’t work the way it did before. If that happens, you’ve invested a lot of time, money, and resources to the endeavor with nothing to show for it. This loss of capital can be difficult to recover from, but the problem may not even end there. A failed growth initiative may also take your eyes off your core business, causing it to suffer too.
How Much Growth is Enough?
If you decide to pursue a growth strategy, the next question you’ll need to figure out is, “How much growth is enough?” (Or, put another way, “How much growth is too much?”)
The key stakeholders (founders, family members, investors, etc.) will need to decide on an appropriate rate of growth. For an angel/venture backed company the answer is usually to scale quickly. For a professional services firm it may be slow and steady. As an example, our firm has always chosen the slow and steady model. While we know we could grow our firm quicker we have always chosen to not get over our skis. We are just as concerned about the downside risk as we are the upside gains (probably because we are a firm owned and run by CFOs!). But everyone must evaluate their own situation.
As you make choices and decisions make sure you have the best trusted advisors around. Rely on ASP for accounting and controller services to ensure that your financials and systems and processes are accurate and complete to facilitate your plans for growth.
About the Author
Mark Tranter has been with CFO Selections since its inception. There he leads the business development and marketing efforts. Mark came on board in 2006 after co-owning a successful executive search firm. At CFO Selections he organizes, hosts, and attends a large number of networking events, ranging from one-on-one meetings to roundtables, seminars, and forums. In this role Mark speaks with many business owners and executives who guide their organizations through transitions and transactions. The opportunity to help businesses succeed and grow continues to be the reason he loves his work. Making connections and building relationships is key to Mark’s business philosophy.