Why You Should Always Focus on Profit - Erin Armstrong

Why You Should Always Focus on Profit

by | Mar 30, 2023 | Leading Your Business, Small Business

It’s no secret that we live in a society where bigger is better. In the business world, this often translates into a single-minded focus on growth, where growth is seen as the single most significant marker of business success.

But while growth is important, it’s not the be-all-end-all of business success. As a business owner, it doesn’t do you any good you to increase your revenue, or to move into a bigger space, or to hire more employees if your profit stays the same. Because, profit, not growth, is the most important marker of your business’ financial health.

Business owners (and even business coaches) often confuse growth and profitability, and they assume that if your business experiences significant growth, your profit will automatically increase. On the flip side, there is a common assumption that the only way to increase your profit is to grow your revenue. Both of these assumptions are false. Here’s the truth: Growth does not automatically lead to higher profit (in fact, in many cases it can reduce profit); and there are many ways to increase your profit that do not involve growth.

Let’s look at the first assumption: “Growing your business will automatically lead to higher profit.” If you’ve ever tried to grow your business, you know how challenging this process can be. It’s easy to make missteps as you start growing your business, especially by over-investing in things like personnel, equipment, workspaces, or subscriptions (which can disrupt your cash flow and tank your profit). To make the growth process as smooth as possible, you need to have a solid plan for the short term that will keep you profitable as you move toward your eventual long-term goals for your business.

Additionally, if you are like most business owners, there are limits to how large you want to grow your business (because of factors like the scalability of your business, how many people you are comfortable managing, your ability to delegate, etc.). If you try to grow your business beyond those limits, you can expect to run into trouble.

All this to say, it’s certainly possible to increase your profit by growing your business—if you do it the right way.

Now, let’s assume you have decided not to grow your business (maybe you don’t want the additional stress of managing more employees). Does this mean you can’t increase your profit? Absolutely not! There are many different steps you can take to increase your profit that do not involve growth, such as:

  • Increasing your prices (when possible)
  • Changing how you “package” your services
  • Being more selective about which services or products you offer (by analyzing the profit margins on your services or products—and evaluating how scale-able they are)
  • Scaling your offerings
  • Shifting the messaging or positioning of your current offerings
  • Optimizing your tax strategy
  • Streamlining business processes (invoicing, payroll, accounting, etc.)
  • Evaluating staff roles, responsibilities, and efficiency to ensure a good return on investment
  • Changing your compensation structure to retain your key talent (and attract new high-performing talent)
  • Learning to be a more effective leader for your staff (and setting clearly-defined expectations)
  • Employing the right staff members for the work you need

If you make these changes, you can easily increase your profit, even if you don’t grow your revenue. I have worked with several businesses owners who decided to downsize their business, which reduced their revenue. And despite the decrease in revenue, we were still able to increase their profit significantly (meaning more take-home pay for the owner).

The point I want to leave you with is this: If you want to grow your business, that’s awesome. But you need to do it strategically, with an eye on increasing your profit. And if you don’t want to grow your business, you should still focus on increasing your profit, because that is what is going to make the biggest difference for your quality of life.

Over to you…

If you’re ready to get serious about increasing your business profit, I have a long track record of helping small businesses increase their profit by 200-500% year-over-year through Fractional CFO Services and would love to help you achieve similar results!

Wishing you fulfillment & financial success,

Erin Armstrong

Erin Armstrong is a Chief Financial Officer, Business Coach, Tax Strategist and licensed Enrolled Agent who’s on a mission to financially empower business owners. Her unique, comprehensive approach integrates all the financial aspects of your business (such as accounting practices, tax strategy, profitability, budgeting, & cash flow) with an emphasis on developing a positive money mindset so you can move forward in a confident, proactive and empowered way. Find out more about Erin here.

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