If you know me, you know I am an accountant (CPA) who by nature is a black and white, bottom-line type of person. So, let’s start with the bottom line. Profitability and growth go hand-in-hand when it comes to success in business. Profit is key to the basic survival of a business, while growth is the key to long-term success. Profitability is the primary goal of all business. Without profitability the business will not survive.
Profitability is measured by income and expenses. Income is money generated from the activities of the business. For example, if crops and livestock are produced and sold, income is generated. However, money coming into the business from activities like borrowing funds does not create income. This is simply a cash transaction between the business and the lender to generate cash for buying assets.
Expenses are the cost of resources used by the activities of the business. For example, seed corn is an expense of a farm business because it is used up in the production process. Resources, such as a machine whose useful life is more than one year, are used over a period of years. And just as borrowing money is not income, repayment of a loan is not an expense; it is merely a cash transfer between the business and the lender.
Increasing profitability is one of the most important tasks of business managers. Managers should constantly look for ways to change the business to improve profitability. Some people believe profitability causes growth, but I do not. Many profitable businesses do not grow.
However, profitable growth is one the best ways to improve profitability. Growth that loses money is not helpful, in fact it is quite harmful, as it takes your money and your time, neither of which we have enough of in our lives. Smart growth, on the other hand, ensures all the P’s that drive profitability are met. Let’s look at the 4 P’s of profitable growth:
Product – Consider all of the following when assessing the products in your business from a smart growth perspective:
• Target market size
• Product positioning vs. buyer needs
• Capacity you can supply
• Competitive landscape
• Gross margin
People – Having the right people is great, but they should also be in the right seats. When people can bring their unique talents to work, they are inspired and naturally engage which makes profitability and growth a heck of a lot easier. Consider the following points to ensure you are attracting and keeping the right people:
• Culture
• Skill & behavior requirements
• Primary job responsibilities & their communication
• Hiring process
• On-boarding & training process
• Compensation
• Engagement and retention strategies
Passion – A strong desire and devotion to an activity or concept (passion) is the key to everything your business does if you want to be highly profitable while you work to grow. It gives you the momentum to keep going even when times get hard and builds your business even higher when times are good. True passion ensures you are:
• Attracting the right consumers to your business
• Building an authentic brand and brand story
• Networking with the right people who share similar perspectives
• Setting yourself apart from competitors
Proof – Profitable growth should not be counted on until proof exists on all of the P’s:
• Product efficacy
• People power
• Passion that never turns off
Keep these 4 P’s in mind for profitability and growth that will make you stop and go WOW.
