Should a Company Focus on Profits While Expanding?

 

Business expansion is not only challenging but it also brings about several changes in the way a company functions. However, having some extra funds handy can prove to be a major boost for any small company wanting to expand globally.

But a question that could bother most business owners is how should they spend an influx of cash? Should they focus on growth entirely or should they focus on making profits only?

As mentioned before, expansion can be challenging and it could be your company’s make or break moment. Perhaps, because you had a successful start and now that you have a consistent cash flow, you might feel your business is sustainable.

Business Profits While Expanding

With an amazing core product or service, encouraging financial figures and an ever-increasing customer base, your company will be on its way of attracting a second round of investments.

But then again, should you be aiming for growth or profit?

We believe that it is always better to have a clear idea of whether you will be using your funds and further investments for growth or profit. And you should make this decision before you start approaching your potential investors.

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Getting Excited Over Growth

With experience in hand, we know that most young entrepreneurs look for growth because they want their company’s brand to be well-known and famous in the market, especially to pose as a potential challenge to the already established players and this is understandable!

However, focusing entirely on growth does not necessarily mean that your business model or plan cannot be profitable or that your company should sell its core products and services for the sake of reaching as many customers as it can.

For some entrepreneurs, growth means that they can start to own more things or hire more people on permanent contracts. This further leads to the need of leasing a larger office space, hefty insurance, and a lot of IT security. This may feel good at first, but in truth you are just narrowing your potential options for the future and increasing your liabilities.

This also increases your probability of running into unwanted issues and unfortunate financial crisis. When there is nobody to serve, you start feeling a sense of failure. But when you have too much on your plate, the operation side your company feels overwhelmed and you might be unable to keep up with the delivery of your products and services. This will lead to the loss of valuable clients, customers and eventually towards the failure of the company.

Profitability Alone Isn’t Enough

Having said this, let’s just assume that you decide to invest your funds across the business, leading to an increase in sales and eventually profitability. Goal achieved! But is it all that you want? Well, even after achieving your profitability goal, you might still be missing something crucial.

All this time, while you were wondering whether to focus more on growth or profits, you forgot the most important thing for any small business or enterprise – cash. It is important to maintain a consistent cash flow to attain business stability.

There have been many instances where growing, profitable businesses fail due to inefficient cash flow management. To avoid inconsistency in cash flow, we suggest you to seek guidance from companies that offer cash flow finance that further helps the SMEs attain sustainability. Once you understand how does cash flow finance work, managing your company’s cash flow will be a piece of cake.

Cash is the most important factor of any business. A company’s opportunity to go big will be lost if its funds suddenly dry up.

Five Tips for Cash Flow Sustainability

  • Seek guidance and advice from financial experts to get a clear idea of your revenue and business cost model for keeping the cash flow smooth.
  • Develop a balanced business strategy where growth and profits go hand-in-hand with the cash flow.
  • Make sure that you are able to manage your stakeholders’ expectations. Always provide them with a realistic picture of your business’s future (state facts and figures). This avoids getting your business into fulfilling unrealistic goals.
  • Even though you have a consistent cash flow, avoid unnecessary expenses.
  • Invest in creating a system that allows you to make accurate cash forecasts. This will give you some much needed confidence, security and sense of your financial health so that you make better decisions around growth and profits in future.

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