When it comes to your business, rapid growth may seem like the entrepreneur's dream. But when you break down your business’s profit vs. revenue, you may find that sales growth doesn't always equal more money in your pocket. What to do then?

Rapid growth may be sexy, but it's not sustainable.  

As a long-time CFO and financial advisor for small business owners, I always insist on looking at profit alongside revenue so you can actually maximize both.  

It all comes down to your profit vs. revenue.

What is Profit vs. Revenue?

Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.  

While profit is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.  

Thanks to Investopedia for these definitions.

A Simpler Way to Understand Profit vs. Revenue...

 Revenue is the amount of money your business is bringing in. 

Profit is the amount left after everything you have to pay for in your business — i.e. your employees, your loan payments, your rent, your materials, etc.

Both Revenue and Profit show up on your Profit and Loss statement. Revenue is at the top (also called Top Line Revenue); Profit or Net Income is at the bottom. 

Net Profit Margin is a key ratio that you can calculate (and track)  by taking Net Income divided by Total Revenue.

The trap that many entrepreneurs fall into when looking for rapid growth is not paying attention to their profit compared to that revenue.

Yes, you want your revenue to increase in your business, but if your expenses are increasing at the same rate (or more), you’re not going to see a bump in your profits. Meaning you’re not ultimately making any more money to pay yourself or to reinvest in your business. 

 

All too often, rapid growth gives you a big boost in revenue without any or very little boost in your profits.

But if growing your revenue quickly isn't the answer, how do you expand your business AND your profits?

The answer: Scaffolding.

Scaffolding is my system for bootstrapping your business success by intentionally building profit. And yes, you can scaffold your small successes into bigger successes into even bigger successes — all based on your profits.

What Scaffolding Looks Like For Your Business

Picture the scaffolding you’ve seen at a construction site. Within these structures, there are planned and controlled layers of support that are each built on top of each other. With each layer of support, you get higher until you eventually reach the top of where you need to be.

Scaffolding in your business is very similar. It is the process of building success after success intentionally one on top of the other to grow to where you want to be long-term.

The thing is, each one of those layers is important and makes the scaffolding stronger and more secure.

So rather than focusing on growing your business quickly, focus on building the next layer of your business.

Here’s an example from one of my clients:

Sans Bakery (https://sansbakery-nyc.com/) is a gluten-free wholesale bakery that makes yummy treats distributed through cafes and coffee chains in NYC. Sans started 2020 with a business that was bursting at the seams -- and not enough space to expand any further. We were in the midst of planning to open a second production bakery nearby when the COVID shutdown happened.  #dreamdeferred.  

Fast forward to the end of 2020 and their core business had recovered and new customer needs had again put stress on the bakery. Sans was able to use cash profit (and a solid lease agreement) to build out a second production space in the same building as their original bakery.   

Now 1 year later, they are planning to invest profit from this year to swap out their current ovens for two sets of larger ovens that will allow them to 4x the volume of cookies, donuts and muffins in the same space!  

The first expansion allowed Sans to expand by increasing the size of their kitchen team and improving the productivity of their team. This second expansion will improve efficiency by making it possible to bake more goodies in the same space with their expanded team. 

All of this operational growth was built by matching growth in revenue with stable or growing profit.

How can you start increasing your profits and scaffolding your business?

Let’s just say you’ve come to the right place!

Ready for More Support With the Financial Part of Your Business?

Join CFO Advisor to be a part of a cohort of small business owners ready to step up their financial game in 2023!

CFO Advisor is a 6-month program that provides CFO support through a mix of 1:1 and group sessions plus online skills building. Learn how to manage your finances, boost profits, and upgrade your financial decisions based on meaningful information

In the course, you'll how to:

• Forecast for the future as you build a 3-year projection model that lets you understand the cash demands tied to growth, create your dream team, and plan & measure your impact.

• Live in the present by selecting and using KPI/Leading Indicators. Plus, you’ll learn our 3 top metrics and warning signals.

• Embody change through an introduction to our decision-making framework. You’ll learn how to use data in your business to inform your decisions day to day.

You'll also be among the first to gain access to our community of social-impact business leaders.