Blog

Everyone talks about “growing your company.” Why is that important, if you’re satisfied with it as-is? It’s not exactly obvious. Let’s take a look at the two big underlying reasons that growth is important, if not essential, to your company’s future.

First, it’s almost impossible to hold a business at steady state— it’s either growing or shrinking, depending on the strategies in play. If those aren’t growth strategies, a downturn is imminent. So, focusing on growth keeps everyone’s eye on the ball and the company’s culture aligned for success.

The second is more tangible. It’s about the long-term value of the company—what someone in the future can earn from the company (say, an heir or a successor employee owner) or what someone in the future will be willing to pay for the company. So, growth is a major ingredient in the valuation of the business.

Why is that? Aren’t companies generally valued on something like a multiple of free cash flow? Yes, but. The “but” is that growing companies are easier to sell—everyone wants to buy a growing company. Growing companies are easier to buy, as well. Why? Buyers are buying the future and usually paying back a lender. They love the idea of doing that out of a growing cash stream. For both those reasons, buyers pay a premium for a growing company.

So, if you have to choose between growth and status quo, choose growth. More in the next issue.