Planning and Analysis for Critical Value Drivers, Part 1: Growth & Profitability

By Daniele Tedesco, CEO of Apliqo

On April 28th, 2022, Apliqo will be hosting Part 1 of our 2-part Masterclass on Critical Value Drivers. To kick off the series, we’ll be looking at growth and profitability, two principles that often contend for the company’s focus but both deserve a place in our business strategy.

Read on to learn how your FP&A team can help your company fuel growth and stay profitable by improving revenue, margins, operational effectiveness, and capital management.

Growth Vs. Profitability: Two sides of the same coin?

“Growth and value are part of the same equation.”

Warren Buffet

Traditionally, most people see growth and profitability as 2 competing business strategies. But really, any company wanting to be successful will find itself needing to adapt both growth and profitability strategies at some point throughout its lifecycle and to different degrees.

Many startups or marketplaces, for example, focus primarily on growth during the beginning of their lifecycle. “If you believe that your category is a marketplace, marketplaces are typically better when they’re bigger. It’s because it delivers a better experience for the customers. It’s not about being bigger just for ego, it’s about being bigger because the experience for the customer is better,” said Oisin Hanraha, Founder and CEO of Handy, in an interview for SLUSH Helsinki.

But focusing solely on growing your company obviously isn’t enough, not even for startups. Companies have to invest ahead of growth, which consumes a lot of cash. And while growing can be a healthy strategy while your business is young and taking off, focusing on growth for too long as the company matures can be foolhardy as it leaves you vulnerable during times of uncertainty.

“This debate about whether you want to be profitable, whether you want to grow, or how much of which is important for your business is a point-in-time thing. There is no right or wrong answer, and it can change many times over in the course of your company’s life,” says Matt Blumberg in a course for the Kauffman Founders School.

As FP&A professionals, our job is bifold; on one hand, our plans, reports and analysis should help our company’s key decision makers identify opportunities for growth. At the same time, by employing a unified view of performance across the company and its various operations/departments, FP&A also should help identify ways for our company to become more profitable.

Some ways we can do this is by honing in on the following 3 key drivers of both growth and profitability:

Note: Every company is different, but you’ll likely find the 3 drivers I mention below to drive growth and profitability at many companies across various industries.

Revenue growth and margins

Properly reporting and analyzing your company’s revenues and margins is key during both times of growth and profitability. Revenue, or the money your company is generating, directly produces cash to feed your future growth investments, and increasing revenue margins are a tell-tale sign that your company is growing. When it’s time to focus on profitability, revenue and margins are just as important metrics for generating more profit.

Operational effectiveness

Optimizing your operations helps build peace of mind in your company. In FP&A, we can use automation, digitization, visualization, and other methodologies to streamline our finance processes and start focusing on more value-added activities rather than manual data entry, Excel, etc. This will make your company more agile and better at spotting as well as acting on growth opportunities more quickly. During times of stability, on the other hand, operational effectiveness can help us reduce costs and improve profit margins to promote long-term sustainability.

Capital management

Whether you’re growing or trying to increase profitability, cash is always going to be king. Reporting and analyzing your company’s capital and finding ways to improve it will boost your company’s cash flow, which you can either reinvest into more growth opportunities or use to increase profitability. Improving your company’s cash cycle, for example, is a very specific and effective way to enhance your company’s capital management.

In our upcoming Masterclass, Jack Alexander will walk you through detailed ways you can better plant, report on, and analyze your organization’s revenues, margins, and capital management to fuel both growth and profitability.

Enroll in our Masterclass here, and visit the Apliqo blog for more FP&A trends and tips.