It's a Marathon Not a Sprint
With the economy still struggling, as it currently is, even growing businesses tend to focus on short-term survival. Cost-cutting and essential cash management often replace longer-term aspirations, but this is unlikely to create enduring growth or value.
Your more immediate goals, as well as your cash flow requirements, will determine your short-term focus. If, for example, your goal is to sell your business sooner rather than later, you'll probably want to focus on profitability by maintaining performance and keeping the business as lean and efficient as possible. But if you’re focused on scaling the business, you may be less profit-driven in the short term, using available cash flow to invest in your expansion.
Some businesses that are focused on value growth – usually venture capital or angel-backed businesses - will happily soak up losses in the early stages with the aim of building long-term profitability in the future. But in reality, most businesses need to focus on value growth and profitability at the same time.
Even if you’re focused on short-term profits, it’s crucial that you reinvest in the business, especially in the early days when the company is at its most vulnerable. This will strengthen the foundations of the business and enable it to grow over the long term.
A business that funds itself, reinvests in its assets and grows exponentially has the potential to be a sustainable business of real value that may one day be sold. So, it's not so much about whether you make a loss or a profit initially, it’s about how you invest any profit that you do make or how you spend the money you raise or earn.
A long-term sustainable growth strategy is only a realistic approach if you pace your growth. Both profitability and cash flow are likely to suffer from an over-enthusiastic approach. The key is in achieving a successful balance between short-term profit and long-term strategy.
While there is no one-size-fits-all solution, here are a few tips on getting the balance right:
- Carefully monitor the health of the economy and your markets.
- Be clear about your goals – are you looking for a quick sale or are you in it for the long haul?
- Identify what will generate the most money for your business – it could be profit growth, customer acquisition, innovation, brand building, cost control or something else.
- Track your data and key performance indicators, and be honest and realistic in your forecasts.
- Focus on delivering quality and excellence.
- Give your management team the tools they need.
- Keep your eye on the bottom line and don’t run out of cash.