Before you push for growth, four things have to be true: the work you would sell more of makes decent margin, delivery has room or a plan for it, the business has the cash to fund the gap, and you have enough of your own week free to lead it. If one fails, growth tends to produce a busier business earning the same money.
If a test fails, spend a quarter fixing it, or hold the business at its current size while something underneath gets sorted.
What are the four tests?
- Margin quality. Split gross margin by type of work. Is the work you would sell more of above or below your average? Growing the below-average category means working harder for the same drawings. Use the last twelve months, split by type of work, rather than a single month.
- Delivery capacity. If orders rose by a third next month, what breaks first, and how long would it take to add that capacity? If the answer is “me”, you have a leadership job before a sales one.
- Cash. Growth consumes cash before it produces it: stock, people, work in progress, invoices waiting on sixty-day terms. Can the business fund the gap without living in the overdraft? Build a 13-week cash forecast that includes the growth and check the lowest week.
- Owner capacity. How much of your week is already spent in delivery? A push needs your attention on the front end, and if there is none spare, the push gets abandoned or the quality slips. Log one week to find out how many hours you could free.
What do the results mean?
Pass all four and grow, deliberately and in one direction. Write down which test failed and the number that would show it has been fixed. Fail margin quality alone and fix first — a quarter on pricing and the work you stop taking will make the same push far more profitable later. Fail capacity or owner capacity and the work is leadership: what comes off your desk, who takes it, what standard it is held to. Fail cash and the first job is the cash cycle, because growing into a cash shortage can sink a profitable business.
An illustration of why the order matters, not a client. A business turns over £600,000 at a 22% gross margin, so £132,000 of gross profit. Grow it 25% without touching anything else and you get £750,000 and £165,000 — £33,000 more gross profit, for a quarter of the work again, more people and more cash tied up. Spend the same quarter lifting margin from 22% to 30% instead, on the existing £600,000, and gross profit becomes £180,000. That is £48,000 more from the same volume, the same team and no extra cash in stock or wages.
What does a fix quarter contain?
Choose two or three repairs, such as repricing or exiting the worst category of work, tightening the quoting so scope creep stops eating the margin, and writing down the delivery process so it survives new people. Each one gets a number and a date, and the quarter ends with a measurement.
Do not run a fix quarter while still chasing new work, because the growth work tends to win. Decide which quarter this is, write it down, and tell the team.
When should you hold?
Sometimes the business is fine and the owner is not: a difficult year personally, a new baby, a health problem, a team that has just lost two people. Holding steady for a quarter is a legitimate choice, and naming it prevents drift. Write down what you will maintain during the hold, such as margin, cash and service standards, and the date you will decide what the next quarter is for.
Hold also applies when you have not decided what you want the business to be. Performance on Purpose asks it directly: are you performing, and is the performance serving a purpose worth the cost of it?
If you want the numbers before deciding, the Wheel of Business scores nine areas and shows which is dragging, and the margins guide covers the fix work in detail. Re-run the four tests at the end of each quarter, whichever path you chose. Business Coaching is where the decision gets made with somebody who has no stake in you choosing growth.
Andy Jackson is Co-Founder of Buzz and the author of Performance on Purpose: build the person, develop the leader, improve the business. He writes about it at andyjackson.com, alongside the courses and books.
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Frequently asked questions
How do I know whether my margins are good enough to grow?
Look at gross margin by type of work rather than the blended figure, then ask whether the work you would sell more of is above or below your average. Growing the below-average work makes the business busier and poorer. If your best category is comfortably above your average and you have capacity in it, you are in a position to grow. If everything sits within a couple of points of the average and the average is thin, that is a fix quarter before it is a growth quarter.
What breaks first when a business grows too fast?
Often cash and quality. The owner tends to notice quality first, because a customer complains. Cash goes because people, stock and capacity are paid for ahead of the revenue they earn, so a profitable expansion can still run the account dry. Quality goes because the standard lived in your head and the new people never received it. The third casualty is your own week, which fills with rescue work at exactly the point you need to be thinking. Plan for all three before the push, rather than reacting to them in month three.
Is it ever right to deliberately shrink?
Yes. Cutting the bottom category of work can shrink revenue and grow profit, because that work carries hours, management attention and often the most difficult customers. The test is what happens to gross profit and to your week, rather than what happens to turnover. A smaller business with better margin, calmer delivery and the same drawings can be the better choice. Before you cut, rank the work by gross margin and by hours, and check how long it would take to refill the freed capacity with better work. Write down the drawings you need, so the decision is measured against a number.
How long should a fix quarter last?
One quarter, with a date and a set of numbers written down at the start. An open-ended fix tends to become permanent. Pick two or three specific repairs, work them for ninety days, then re-measure and decide what the next quarter is for. If the numbers moved, you can push for growth. If they did not and you can name why, fix that. If they did not and you cannot name why, check whether anything changed in the week. Write the result down at the review.