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There’s a huge problem spreading through the business world. I see business owners, sales managers and salespeople stressed out every day because they don’t know how they’re going to grow their business to the next level. It’s as if growing is the most important thing, and nothing else matters except topping last year’s sales numbers.

Growth is not what’s most important. Profit is.

OK, I know. You don’t see the difference. And that’s the problem that’s spreading like wildfire. You believe that if you grow, you’ll make more profit. That’s simply not the case. More sales does not necessarily mean more profit.

Let me give you a perfect example. One of my clients, “James,” owns an environmental consulting firm. During the last two years, he’s hired three new employees including a salesperson to go grow the business. James himself is a tremendous salesman, so together, they’ve quadrupled billings for his firm. A big success story, right?

Wrong.

James is facing a huge problem that everyone faces when they put growth before profit. He’s losing money. Big time. Yes, on paper, his sales numbers look tremendous. But making the sale and collecting the funds are two different things. Gary thought he had the infrastructure in place to handle the huge surge in work, and guess what? He didn’t.

During the past two years, he’s had tremendous expenses to keep up with the growth. New computer systems, new employees and outrageous out-of-pocket expenses. So much so that James’s been working for 18 months without a paycheck.

Please understand. James is no different than 99.9 percent of the business owners I work with. He put growth before profit, and the decisions he made gave him growth. But they didn’t give him the financial payoff he expected.

Here are three main traps that tripped James up. Are you falling into the same traps?

1. “All business is good business.” All business is not good business. The only business that is good business is business where you make a profit. That means that after you pay your expenses–including paying yourself–you will have money left over. Ah ha! Profit. Often, business owners take business that they shouldn’t take and lose money on the work. Yes, it happens all the time. But the only way to know if you’re losing money on each project is to sit down and learn your financials. How much does it really cost you to stay in business? How much are you earning or losing on each piece of work your company does? If you don’t know the answers, you’re falling into a common trap.

2. “All I have to do is sell more.” A big fat wrong. If you’re losing money on the work you do, more sales will mean more loss. Sales is only one part of the equation. Keeping your expenses in line so you can keep more of your money is just as important. Unless he changed how he was operating, more sales would have put James out of business.

3. “But look at my sales numbers. We’ve sold so much more than last year. I have to be making money!” This is the No. 1 thing that frustrated James the most. It doesn’t matter what your sales numbers say. It matters how much cash you have to run your business and how much profit you make at the end of the year. In James’s case, he failed to realize it takes his firm six to nine months to complete a project for a client. Based on how he was running his company, he would not see a dime until the work was complete. I don’t know about you, but James didn’t want to go another year without pulling any money out of his business.

I’m happy to report James has not only shifted how he views his business, but his employees have hopped on the profitability bandwagon. Everything has changed from how they bid projects, to who they sell to, to how they bill and how they do the work. For the first time in a long time, James is going to be able to keep some money for himself this summer.

The morale of the story: Stop going for growth. Go for profit instead.

Gustavo A Viera CPA

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