Business Health Driver #2: Growth Potential
In our blog 8 Indicators of Business Health, we shared some of the key drivers of the overall health and value of a business, which can help you reap the rewards in the short and long term. Last time, we covered Driver #1: Financial Performance. Next, we’ll dig into Driver #2: Growth Potential.
If Financial Management is about where you’ve been and where you are. Growth Potential is about where you’re going. A stagnant business, even a healthy one, is not as valuable to you or to others as one that has growth potential.
To establish long-term, sustainable business health, you need to know where future growth will come from. There are two primary categories of business growth:
· Organic Growth
Businesses build growth potential organically in many ways. Perhaps you have built expertise by focusing on a specific industry vertical, customer demographics or geographic territory. Growth Potential might look like expanding to address new industries, serving new markets or adding to your geographic target market. You might have started with a single product or product line to which you could add product or line extensions. If you have multiple businesses, services or product areas, organic growth can include cross-selling and up-selling current customers.
Businesses with limited growth potential might be hindered by a lack of R&D or product development capability. They might be missing critical talent to drive expansion, or lack the discipline to focus on current and future targeting efforts. The key to driving growth potential organically is to have a plan for how to focus investments of talent, time and funding.
Growth Potential through Acquisition
The other way to generate growth potential for long-term, sustainable business health is through acquisition. Whereas organic growth focuses on various ways to expand your existing business from within, Acquisition expands your business by adding volume, capacity, territory, products, customers, etc. by purchasing other existing businesses. Here too, it is vital to have a plan for growth and do your due diligence to be sure that you are targeting other businesses with strong growth potential.
Why Worry About Growth Potential?
All businesses have a lifecycle. No matter where you are in yours, your long-term viability depends on knowing how to generate and capitalize on the upswings, and manage the downswings. Without a concerted plan for future growth potential, your ability to do both is hindered. Whether for yourself, your successors or a future prospective buyer, Growth Potential is a critical factor to ensure the overall value for the long run.
Consider the Alternatives
Whether your goal is to sustain or to sell, business health is the only way to get the most out of your life’s work. If you’re ready to assess the state of your business and/or work toward a healthier state, there are a number of ways to approach the process. Learn more and/or take an assessment.
We are the W Alexander Group, headquartered in Cincinnati. We are not consultants or business brokers. We are private minority investors who work in active partnership with owners to provide an alternative to selling their business now through strategic and operational initiatives. Our uncommon approach protects owner equity and provides an interim step, allowing for a more planful change and down-the-road sellability when you are ready to transition.