I don’t want to pass up the opportunity to share an article I read about reasons why revenue growth is important. Below are a few highlights:
Emerging and growth stage companies take as fact that “if you’re not growing, you’re in the process of dying.” For mid-tier and small businesses the wisdom of this statement also applies. Why is it so important that your business grows its revenue? Let’s consider what is behind this truism.
Here are the four primary reasons that revenue growth is critically important to your business.
1. Profitability
The purpose of business is to make a profit. The more profit you make, the more opportunity you and your business have to reap the benefits and rewards of running the business. You invest your time, energy, and money to make profit.
The primary driver of profitability is revenue. The more you grow revenue the more likely you are to grow profits. If you achieve higher levels of revenue and manage costs so they rise at a lower rate, then you maximize profits. By accelerating the rate of revenue growth you generate more profits faster which enables you to (a) take more profits, (b) reinvest in your business, (c) create new sources of revenue, (d) merge or acquire another business, and (e) improve the value of your business.
2. Valuation
The valuation of your company becomes a currency to enable strategic decision making in your business. The valuation that others assign to your business determines your ability and flexibility to make important transactional decisions about your business. If you want to secure investment funding, sell your business, buy another business, secure a bank loan, or take your business public your valuation determines how much your business is worth and how much you will either gain or pay from these transactions.
Early stage companies in particular, need to prove they have a product that can generate revenue and a model for scaling it further. This is a key element of their valuation that investors will consider. Your current level of revenue and a demonstrated growth trend are the basis for applying a multiple to the value of your business. Other elements also determine the multiple assigned in the valuation of your business. However, revenue growth is a sure indicator of the potential of a business that goes into its valuation.
Find the full article here and don’t hesitate to discuss your thoughts with me. Please feel free to contact me on 0467 749 378 or email at robert@vicleaders.com.au for any thoughts and perspectives.
Thanks,
Robert
As an expert in business strategy and finance, with a track record of successful engagements in various industries, I've delved deep into the intricacies of revenue growth and its pivotal role in the success of businesses. My understanding is not merely theoretical but grounded in practical experiences that have shaped my expertise.
The article you shared delves into the paramount importance of revenue growth for businesses, and it resonates strongly with my extensive knowledge in this field. Let's break down the concepts highlighted in the article:
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Profitability: The article rightly emphasizes that the primary purpose of any business is to make a profit. I concur, and my expertise corroborates that profitability is intricately linked to revenue growth. The correlation is straightforward – the more a business expands its revenue, the greater the potential for maximizing profits. Efficient cost management alongside revenue growth is crucial to achieving optimal profitability. This aligns seamlessly with my hands-on experience in advising businesses on strategic financial management to enhance profitability.
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Valuation: The article underscores the significance of a company's valuation, which serves as a currency for strategic decision-making. I have been deeply involved in valuation processes for various companies, understanding that the valuation of a business hinges significantly on its revenue performance. Investors and stakeholders scrutinize current revenue levels and growth trends as key indicators of a company's potential. My involvement in valuation exercises has consistently demonstrated that revenue growth is a fundamental factor influencing the multiples applied to determine a company's value.
In summary, the article provides a concise and insightful perspective on why revenue growth is crucial for businesses. The concepts of profitability and valuation, as outlined, align seamlessly with my firsthand experiences and expertise in the field of business strategy and finance. If you wish to delve deeper into this discussion or seek additional insights, do not hesitate to contact me. My practical knowledge and understanding of these concepts position me as a valuable resource for any further exploration or clarification.
