Do Not Sacrifice Profits for Sales

Don't Trade Profitability for Growth


The bottom line in business is that you have to make money. But all new business ventures do exactly the opposite. They lose money. The biggest question for surviving is exactly how long can you afford to lose money? Every business, whether it is brand new or has been around for years, reaches a point where it had better turn a profit or it is not going to last much longer. And once that point is reached the fall can be mighty quick.

Becoming a Victim of Success

One of the biggest pitfalls a company can get into is to become a victim of its own success. Now this can happen to a brand new venture with a spitfire of an idea as well as a company that has been around for a few years and has been steadily plugging along. Businesses both old and new get in what might be termed as the expansion trap. And they begin to expand beyond their means. What might have started as a profitable little enterprise begins to sacrifice those profits so that they can expand that top line, sales.

Your Cash Cannot Keep Up

In either case what happens is simple. The business takes off and the cash can’t keep up. Say for example you have a service business. The type of service you provide is dependent upon having more employees, vehicles, equipment and what not. But because the growth comes at you in a surge you inevitably never have enough of these things. Quite possibly to get the business started you borrowed the money from a bank, friends or investors. And to get what you need you start to pump that money into the business fast. In return you see the effects, sales start to grow.

Are You Making Money?

But are you making money? Probably not. Why? Bcause businesses go through growing pains. Owners and employees make mistakes. You buy things you may not really need. And eventually that funding grows tight. But you say to yourself demand is still increasing, sales are still growing and we need to invest the money we are making into that growth. And it’s at this point that you get hammered!

You Keep Spending

You get hammered because to grow your sales you spend money. The money you spent on an item such as a vehicle may only need to be spent once. Or so you think. But if your sales continue to grow then eventually you may need another. These supposed one-ime expenses are the onesthat kill your profitability. And eventually your business. You need to avoid getting ahead of yourself. And you need to keep some of your profits in your pocket.

Don't Get Caught u in the AdrenalineRush

It really is a great feeling when a business is growing by leaps and bounds but as an owner you can’t let yourself get caught up in that adrenalinerush. Eventually your business venture needs to turn a profit. You need to rebuild the war chest. Otherwise you’ll burn through all your cash and be left without a penny in the bank. Remember you’re in this for the long haul. Short term adrenalin rushes are great but they can eventually cause your business to come crashing down.

By Justin Miller

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