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Extra funding can be a huge boost for any small business with a burning desire to expand. But how should you spend an influx of cash? Should you go for growth or profit?
Scaling up can be a make-or-break moment. Perhaps your launch went well and now you’ve got some traction? With a well-designed core product or service, some encouraging financial figures, and a thriving customer base, you’ll be on your way to attracting a second round of investment. But should you focus additional funding on growth or profit?
It’s good to have a clear idea of whether you’ll use funding for growth or profit before you even start approaching investors.
Going giddy over growth
Broadly speaking, young business bosses usually look for growth because they need to get known, and are maybe challenging established players, if not industry assumptions. This is understandable.
However, focusing on growth does not mean the business model shouldn’t be profitable, or that the business should give its products or services away for the sake of reaching as many customers as possible.
There’s also the temptation to grow by starting to own more things and employing lots of salespeople and other staff on permanent contracts. Then you need a lease on a larger premises, heftier insurance, HR people, lots of IT and much more. This might feel good at first. But in reality, you’re narrowing your options for the future and increasing your liabilities.
It’s also possible to run into problems quickly. Without orders, you’ll be like an empty machine. With too many orders, the operations side of your business may feel overwhelmed and unable to keep up with the delivery of products or services.
Note: this post has been published as an article on Real Business, where you can find the full version.
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