Profitable Top Line Growth

Andy Birol, Birol Growth Consulting

Companies Either Grow Or They Are Sold

While financial gamers, schemes and scams have enabled many companies to avoid either profitable growth or a sale for years…

… ultimately one of these options is inevitable.

  • A company that is profitably growing is controlled by passionately committed owners and investors.
    Their firm is financially and operationally self-sufficient. There is no need to merge or look for investors.  Its leaders can reduce its credit line and pay down outstanding loans. The company has customers who are happy to pay for its valuable products or services. Over time, the company will build up retained earnings and become a creator of wealth. As long as its owners are confident and passionate they should never think of giving up their independence in running it or cashing out. Life is good!
Your company either profitably grows or is sold say Andy Birol.

Your company either profitably grows or is sold says small business growth consultant Andy Birol.

  • A company that is not growing profitably has flat or declining sales.
    Its costs and expenses are fixed or rising and it starts to lose money. The company begins to consume more cash than it generates. Owner, banks or investors have to subsidize the company through credit or by tapping any retained earnings. These leaders lose passion for their business as it is no longer self-sufficient. Clearly, its customers cannot or will not pay enough for the firm to delivery its products and services.  First, the company runs out of cash, then out of credit and finally must be sold.

There are only two buyers for a company that is not profitably growing:

  1. New owners and investors with ideas, cash and passion to return the company to profitable growth.
  2. Bankruptcy trustees who sell the company for whatever they can to pay creditors pennies on the dollar.

So companies either profitably grow or they are sold.

What’s it going to be for your company? Do you agree or disagree?

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How to Profitably Grow Your Top Line (Part I)

Simply put, a business has a profitable top line when its revenues cover both its variable costs of producing its products or services as well as its fixed costs of overhead.

Revenues are the sales price charged times quantity sold.

Overhead consists mainly of SGA, Sales, General and Administrative expenses.

A company becomes profitable when its sales exceed its breakeven point. The breakeven point is where a company’s sales cover both the inescapable fixed costs of running the firm as well as the escapable variable costs of producing a given quantity at a given unit cost.

Why is it so difficult for a business to consistently keep its top line profitable?

How To Profitably Grow your

How To Profitably Grow Your Top Line by Andy Birol

The four main reasons are seen in how it reacts to marketplace demand for its wares or increases in its costs when:

  1. It cuts price to sell more quantity.
  2. It cuts quantity to maintain a higher price.
  3. Its direct costs of producing its product or service (direct labor and direct materials) grow so high that its selling price must be raised beyond what its market will pay.
  4. Its overhead grows so high that no achievable level of sales can cover its expenses.

To profitably grow its top line, a company must raise prices and sell more. Its costs and expenses must be managed but nothing ensures a company’s profitable growth more than being able to price higher and still sell more. Pricing higher than the competition means its products are seen as differentiated and selling more means its products are in high demand.

Most companies successfully do so when:

  • Their products and services can be produced and delivered at high profit margins
  • Their customers believe what they buy is valuable and scarce and they need to do so in order to succeed in their lives, jobs or business
  • The company can choose when, where and how it sells and markets its products and services

Profitably growing ones’ top line gives a small business the power, control and flexibility to do business as it chooses. Over time, it provides the company with security and predictability, and its owner with discretion and wealth. No wonder it is so hard to achieve and difficult to maintain!

Coming in future posts, I’ll further define profitable top line growth, dissect it and discuss how to diagnose it.

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