How to Achieve Sustainable Business Growth
Steps to sustainable business growth
Business growth is an important company objective, but it needs to be sustainable. This means futureproofing and for that you need a good business plan. But how do you achieve sustainable business growth without burning out too early?
When a business starts out, the aim is to be profitable enough to grow but any enterprise must meet the breakeven point before they can start to be profitable. That’s the point at which its costs are met and effectively covered. Any revenue generated beyond that becomes profit.
A good business plan will ensure that the breakeven point is always met but a great business plan will do that and allow profit to grow steadily and securely.
Why is sustainable business growth important?
Without sustainability, a business cannot survive. If a company grows too quickly it will peak too early and can risk racking up debts. Sustainable business growth is about making sure your income is always higher than your costs.
To calculate the sustainable growth rate you need to multiply the retention ratio by the return on equity.
Retention Ratio = 1 – dividend payout ratio and Return on Equity = Net Income/Total Shareholder’s Equity
The retention ratio is the flip side of the dividend payout ratio. If the firm pays out 20 percent of its earnings in dividends, then its retention ratio is 80 percent. The Return on Equity (ROE) is what the firm earns on the shareholder’s investment in the firm. Multiply the two together, and you have the sustainable growth rate.
How do I achieve sustainable business growth?
As a guide, aim to follow these steps:
- Lay the foundations
Write a realistic and achievable business plan that accurately lays out how you intend to scale your business. This should be a working document that you refer back to.
- Get your business model right
Different businesses will have different scalability expectations. Understand who you are, the markets you are targeting and how and where you intend to sell.
- Consider customer retention
New business is important, but your existing customers are where you can expect repeat sales so look after them. Customer loyalty requires groundwork to ensure they keep coming back.
- Recruit a good team
You are only as good as your team so recruit well and create a team of people you like and trust. Value them and they will give back. People often exceed expectations when they are happy.
- Don’t resist change
Change can be scary, but it can bring with it a host of new opportunities. Consider the risks of course, but sometimes taking a risk can end up being quite fruitful.
- Consider partnerships
Partnerships might mean cutting into some of your profits but if their expertise bring good business, it’s a worthy investment.
- Have a back-up plan
Sometimes things beyond our control can really test a business’s stability. Futureproofing with a good business plan means preparing for the hard times to ensure they don’t affect your sustainability.
Ultimately your business plan should be your manual – a guide or Bible that you keep to hand, to understand where you are, where you need to be and what you need to achieve to grow at a sustainable rate.