3 questions to decide if your company is “growing broke”

Recently, I spoke with a group of executives from our local Chamber of Commerce. Imagine a roomful of executives in their suits and ties, laptops out, ready to learn. I enter the room and simply ask, “How will you grow your company this year? By a show of hands, how many of you believe you will grow through “more sales,” of course?”

The hands eagerly raise into the air.

It just makes sense, right? If I want to grow my business, I need to sell more.

Question 1: “Have you ever considered you could be wrong?” 

As they pick their jaws up off the floor, I explain this example. If I work at Cool Cat Company ABC, which just made one of the fastest growing company lists locally or even nationally, and I’m standing on stage accepting my award for growing from $1 million to $10 million… does any of that really matter if $9,999,999 went flying right out the back door for costs and expenses? I’m standing there shaking hands and posing for pictures, knowing I have under $1 in my bank account and loans up to my eyeballs?!

• Revenue is vanity.
• Profit is sanity.
• Cash is king.

This is an eye-opening exercise of 4 Key Questions for many solopreneurs and entrepreneurs of emerging small businesses, so let’s take one more inquisitive scenario to play out.

If you have not analyzed your profit and loss statements from your CPA, your cashflow reports from your controller, or your balance sheet from QuickBooks, you aren’t taking accountability as the owner, entrepreneur, or CEO of your business. You are abdicating your responsibility to manage the company by metrics and simply managing by gut.

All of those resources are amazing—accounting software, bookkeepers, controllers, bankers, certified public accountants, and so much more. As a leader, how you utilize them matters the most.

As a coach, I meet CEOs where they are in their journey. If they’re confident in financials, terrific. If they’re not, that’s okay. We can get there. That’s right—we can all get there. Believe in yourself, get a coach, take a class, read a book, watch a YouTube tutorial, and make it happen. You don’t need to crack open the college textbooks to get up-to-speed education these days. The world is at your fingertips with the internet.

Many leaders running companies and organizations of all shapes and sizes haven’t yet found their comfort zone leading by metrics, not just their gut. It’s okay to need to level up our knowledge base. What’s not okay is burying our heads in the sand as leaders and “assuming” it’s all going well because they would tell us if it’s not, right?

Again, I’ll ask the same simple question, “Have you ever considered you could be wrong?”

As a leader, if you’ve banked on your gut for 20 years to build the business to where it is today, consider whether what got you here might not get you there. Where are you headed with your goals? Are you scaling and rapidly growing? Are a new set of leadership skills needed to bridge the gap between where you are today and where you want to be in five years?

Question 2: “Do you wish to know the seven levers that can change your bottom line today with just the power of +1?”

There are seven levers you can pull as the CEO or CFO of a company to increase your net profit and enhance your cash position. As a Scaling Up coach, I have a dynamic Power of One app that can convert 3-4 years’ worth of P&L statements into a powerful story about the health of your business.

We can play with the concept of increasing your prices or volume by 1% to see which is better. Model it and forecast it out. As the CEO, you can finally answer burning questions like, should you sell less at a higher rate or sell more at a lower rate? Sometimes producing more widgets at volume only increases your expenses at low margins and doesn’t have the high impact on the bottom line you’re hoping for.

I often work with leaders to play out the concept of decreasing your COGS (cost of goods sold) versus laying off staff when tough decisions need to be made. The power of 1% changes in the right areas of your finances can create leverage and help you make the right choices. Fueling your knowledge in these seven levers can enhance your gut instinct or support your decisions.

CEOs can even tinker with what a one-day difference can do within accounts receivable or accounts payable. Yes, that’s right—even a one-day difference in payables or inventory turns can significantly affect your cash conversion cycle and cash flow story.

Question 3: “When your sales department grows your company, will you be growing broke?”

This can be a puzzling question at first. Most people associate growth with sales and sales with cash—so why would growth ever be bad? How could you ever grow broke by selling more? 

Then I draw a simple chart on the wall. The green marker is a big arrow shooting diagonally up across the page, showing your rise and growth in revenue. But then the red marker comes out and shows our profit has sunk downward at the same rate as your growth. Why are you selling more but retaining less?

As a leader, if you don’t know how much of every $100 sale is left at the end of the day, you can grow broke. Your green marker looks great, but your red marker is looking terrible. Without watching all three reports regularly—P&L, cash flow, and balance sheet—you might miss it. Those everyday blinders can limit your ability to see that.

Several CEOs in a crowded training hall will believe they know the answer to this third question. They are sitting up straight, smiling, and feeling good. They think they have this one in the bag. In fact, they’ve already mapped out their cost of goods sold, labeled them within their accounting software like QuickBooks chart of accounts, and believe that for every $100 of widgets sold, their cost is $50 for goods.

But they may not have yet considered the gross margin and the contribution margin to ensure their net margin is truly what they believe it is. All three can be crucial to your field or industry. Have they forgotten any third-party vendors who will spin up a bill because this order was placed? Have they included current staff hours toward fulfillment of the order? Are there any variables left unchecked? How are you covering your overhead these days with rising inflation, higher shipping costs, delayed goods, etc.?

With my handy-dandy coaching app, I can confirm with their very own profit and loss statement records over the last several years that for every $100 sold, they actually keep $___. This is where the magic lights within them. When they can see and touch and feel a report that shows every time they make a sale, they are under-bidding or under-charging by upwards of possibly even $18, let’s say. 

Well, now they get it! Ding, ding, ding. Light bulb moment has arrived. “Oh, so that’s what you mean by growing broke, Coach Stacy! Because if I scale my business and sell 100 x $100 orders, I will lose -$18 one hundred times. Woah—I will grow myself out of cash and grow myself out of business!”

YES. Now you see the importance of knowing your metrics, managing by metrics, and learning to step outside your comfort zone in 2022 to gain a new perspective on your company’s growth. These three questions and a skilled expert of your choosing—within your company or external—can help you see the right path for your business moving forward.