The search for profitable growth

Entrepreneurs want their businesses to grow. More products, more markets, more customers, more sales. More investments, extensions, expansion, more equity. There are many ways to measure the growth of a company; But the only thing that really counts is earnings growth. Profitable growth is the goal that the entrepreneur must seek.

In his company, the businessman tries to get everyone involved in the process. Growth is everyone’s business, it is something every day, every decision that is made and every step that is taken. Every day something happens in companies, and those things that happen will lead the company to success, or failure.
Entrepreneurs want to be successful in their businesses. Success is profitable growth.

Expanding the operations of a company, a larger size of the organization, more products, more square meters, more machinery or more sales, is not always real growth. All these elements can dazzle both people and others; but they are not always accompanied by profits. Worse, they are sometimes achieved through dangerous borrowing, high risk, or even sacrificing profits.

What works in the real world?

For almost 10 years I worked as a financial and accounting consultant; then 10 more years I specialized in financial reengineering, supporting companies facing terrible financial crises. Then I decided to specialize in utilities, and I now dedicate my consulting almost entirely to that. Why? Because I determined that many companies grow impressively; but without profit. This growth with debt –or risking the profit margin–, causes businesses to end up bankrupt in a short time due to lack of liquidity, high fixed costs and difficulties to operate on a day-to-day basis.

True profitable growth is made up of several components. Entrepreneurs do not always have sufficient control that they should over each of these elements, nor over the connections that exist between them. It is in this lack of control that the problems of low profitability in business originate.

The whole thing starts with taking over where it really should be held.

Some of these components are:

• The ability to effectively understand what the customer wants, and even to know if the company is in its right market niche.

• The ability to innovate and develop new products or services.

• The ability to have a truly competent sales force.

• The ability to accurately know the costs of each product or service.

• The ability to control and modify the production costs of each product or each service.

• The ability to adapt the structure of the company to your needs and get the most out of fixed costs.

• The ability to modify or negotiate the leverage structure and cost of capital.

All these knowledge are capacities in which the entrepreneur must invest time and money. They are related to growth indicators that should appear on the radar screen of every entrepreneur, and that must be looked at every day.