A healthy bottom line is not just about growing revenue — as there are specific financial principles that create a bigger impact.
The world certainly had its fair share of chaos in the past several months. For many business owners, it’s been a good lesson in the value of financial stability, preparedness and principle. A few have even found a way to thrive while better serving their customers through recent difficult times.
How about your business? If 2021holds a path of chaos, is the organization you’ve built ready for the shock?
Putting these questions alongside the word “growth” seems odd. To most, when things are rough, it’s about survival and maintenance. And these are certainly things to consider if your company doesn’t have solid footing. But what about companies who are sure-footed heading into a crisis or downturn?
They’re able to:
- Find opportunities in the midst of the storm
- Quickly pivot to a changing market
- Immediately understand how circumstances affect how they work
Getting things into the position for “growth through chaos” requires a combination of structure, consistency and action-taking decisions. In this article, you’ll learn five principles of growth to give you ideas to expand and increase your revenue — regardless of the world around you.
1. Incorporate Uncertainty
On the surface, everyone understands there are no promises for tomorrow. You wouldn’t guess that if you had a look at most companies’ annual plans. Incorporating uncertainty into your outlook isn’t about taking on doom-and-gloom thinking. It’s about understanding that life is unpredictable and has a tendency to be difficult.
Take a moment to think about your plans for the coming year. Does hope spring eternal? Or is there a realistic paranoia that the bull run will experience a hiccup?
How to Incorporate Uncertainty
- Keep your goals: Understanding the type of growth you want is great. But understand there must be different paths and timelines to achieve your objectives.
- Use history as a guide: Know how your industry weathered problems in the past. There are likely examples. Even the dotcom boom/bust sheds light on a potential software startup downturn.
- Allow a bit of paranoia: Don’t fall prey to an economic doomism that convinces you to cut costs or sell your business. But do attempt to view a slightly pessimistic reality with a bent on achieving growth through those circumstances.
2. Embrace Financial Fitness
With reality firmly set in your mind, typically the first place of concern are business financials. And it’s a logical place to go. After all, a solid business model (e.g. the ability to get and retain customers) and a keen eye on your numbers are the bones of stability in any economic situation.
Embracing financial fitness is the most important step toward survival and sets the stage to thrive in hazardous economies.
How to Embrace Financial Fitness
- Improve your cash flow: The positive amount of money you have at the end of a certain period (i.e. monthly or quarterly). More of it creates flexibility in your business and the ability to take advantage of opportunities (when they present themselves).
- Track financial metrics: Cash flow is one metric, but there are many others. It’s important to track the KPIs that matter most to your business and avoid tracking “everything.”
- Use an accounting service: Monthly bookkeeping, budgeting and forecasting (as you’ll see) are deeply tied to nearly every principle of growth.
3. Use Multiple Scenarios
Things may well go perfectly this year. Inflation doesn’t rapidly increase, people keep searching for your solutions and everything fires on all cylinders. Hopefully, just reading this makes you aware that it’s not likely to happen. But have you ever planned for something other than “good” or “normal” economic conditions?
It’s beneficial to create certain scenarios in order to figure out the best ways to move your company forward, regardless of what comes.
How to Best Use Multiple Scenarios
- Have a few: Create the best-case and worst-case scenarios. If you’ve been in business for some time, take your average growth and create a middle-of-the-road picture, too.
- Play them out: Don’t just have them, but think about what moves you’d make depending on the scenario. Things are good, buy equipment and hire. Things take a turn for the worse, pivot marketing strategies and focus on fundamentals.
- Create a modular playbook: Take these potential decisions from each scenario and create certain modular processes that can be implemented, given the most accurate forecast.
4. Understand Company Drivers
Part of being ready for growth through both good and bad times is really understanding the core elements of your business. Everyone knows that we need food, shelter and water to survive. But some individuals are in better shape than others. Gas station burritos are not the same as a healthy diet.
Some of the habits your business has, metrics you track and processes you employ aren’t the most important.
Three Types of Drivers
- Deliverable drivers: For a manufacturing company, raw materials and labor are the bread and butter. In a SaaS company, it’s product use. And for service-based companies it’s all about the value provided. What is the core product/service/function of your company and the things you must have to deliver on your promise to customers?
- Growth drivers: These drivers are how you attract, close and retain customers. It’s advertising, content marketing, outbound sales and/or referral marketing.
- Financial drivers: Financial fitness (as covered above) involves tracking certain KPIs to regularly monitor performance. Cash flow is perhaps the most important (or runway for startups), along with payroll figures and maintaining a sound budget.
Note: Understand your drivers in the context of your scenarios. Understand how your strategy will change if there’s a downturn.
The manufacturing company may bulk order materials to save money (if they have it in the bank). The SaaS company would calculate their runway and focus on creating a positive cashflow asap. Marketing would likely change. An entirely different target market may be necessary. This is why it’s important to understand the components that make up your business.
5. Build Cash Reserves
Principles 1-4 allow your business to build a structure that withstands trouble better than other organizations. The fifth principle begins the turn, to show how growth occurs regardless of economic conditions. Right now, you may not know how you’d save cash if you lost 3-5% of your business over the next year.
But what if you had to figure it out? If that’s your goal and 5% loss is a scenario, how would you pull it off? In your personal financial life, it’s important to “pay yourself first.” Insuring your business has cash isn’t much different. And once you have the cash, you can use it (when the time is right).
Ways to Use Cash Reserves
- Ramp up growth channels: Having more cash means that you can ramp up your marketing and sales funnel to move the top and bottom line numbers faster than before. It also creates the means to hire for incoming clients.
- Create new revenue streams: New products, additional services or even a spin off company are all possible with enough in your business accounts.
- Buy horizontally or vertically: One way to achieve top line growth is to buy competition and absorb their clients. Or you can strengthen your business via horizontal acquisition (e.g. a manufacturer buying a key material supplier).
Make Sure to Enforce Discipline
Without discipline, principles on paper are meaningless. It takes regular accountability, planning and time to implement each item on this list. If you really want to prepare for the inevitable, while gaining the ability to thrive — you must work at it.
The first place to start? Accounting. Every element you’ll need to grow is tied to the financial health of your business. A quality accounting service, like Pasquesi, also provides the ability to forecast scenarios, track the key drivers of your business and help your business plan for a better cash flow position.