Writing for QuickBooks Resource Center, April Maguire tackled one of Knowify’s customers’ thorniest business dilemmas: Where to focus. Should you position your business with an eye to revenue or position your business with an eye to growth, and why does that matter?
According to Maguire, starting and growing a new business often means walking a thin line between earning revenue and pursuing growth. After all, she says, “a business can’t be successful if it doesn’t bring in profits, which requires revenue. In the long run, however, growing into new markets is crucial if a company hopes to move beyond the startup stage.”
Where are you?
Revenue-focused businesses concentrate primarily on earning money. In construction and the trades, that typically means the money you receive from the sale of your service and the markup on the materials used to deliver that service. Maguire reports that small businesses with a revenue-based mindset “tend to focus on creating a solid revenue model for long-term profitability before expanding their efforts” elsewhere. Growth-focused companies, she says, concentrate on expanding service and territory “at the expense of near-term profitability.” Contractors with this mindset tend to be concerned with growing market share first, and then in building cash revenues. They are likely to hire employees sooner, upgrade operations and spend on marketing — all with an eye to expanding their customer bases.
Cash now or cash later?
Revenue-based business models, Maguire writes, are often considered “safer choices because they focus on creating a model for profitability.” That same revenue focus also can prevent a company from growing too quickly and finding itself suddenly in the throes of expanding so rapidly it sacrifices quality for quantity.
Key, she says, is that growth-focused businesses, especially in their earliest stages, may rush themselves out of business — hiring too few or inadequately training workers, running into serious cash flow crunches that hamstring their ability to make payroll and pay vendor bills.
Maguire also cautions that growth doesn’t always mean profit. Acquiring more business by cutting prices, or trimming margins squeeze cash flow. Better, she says it to ensure you are actually making money on the business you close before expanding into other markets or niches.
Can growth pay off?
Yes, says Maguire, if you are a company like Groupon…or, you are in a highly competitive industry. So ask yourself, are you, and should you? If the HVAC business in your market is flush with competitors, your business strategy may be to “buy” market share by trimming margins and low-ball bidding to draw customers away from your competitors and drive them out of business.
It’s a risky strategy, Maguire notes, “but if you’re focused only on immediate profits, you might make money in the short term while missing an opportunity for huge success down the line.”
Can you be both?
Sure, why not? But it’s a tricky juggling act. Maguire says the best-case scenario for startups is to demonstrate solid revenue while growing their customer bases. That’s difficult to accomplish for most contractors who have limited resources. But, she notes, with careful planning and the right tools, it is possible.
Use the right tools
Not wrenches and snakes, but advisors like a bookkeeper, an accountant, and the right technologies. Each can mean the difference between eking out a living and making real money. Knowify, for one, can help. We’re already helping contractors like you integrate their business management needs with accounting systems like QuickBooks from an easy-to-use interface accessible from any device — in the field and in the office.
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