Before deciding how to grow a business, I ask its owner a question:
What do you want this business to do for you?
Produce dependable income? Become something you can eventually sell? Pass to your children? Attract investors and expand?
More than one answer may apply. But the priorities matter, because they influence how you spend money, hire people, organize operations, and measure progress.
A company can grow successfully in one direction while becoming less suited to the outcome its owner actually wants.
If You Want Income, Measure What You Can Take Home
Evaluate a business built primarily to support its owner by the cash it can distribute sustainably.
Revenue alone will not answer that question.
The company still needs to fund operating expenses, taxes, debt payments, equipment replacement, and working capital. Taking out money the business needs can create problems later.
Growth also deserves scrutiny. An expansion might eventually increase income, but it may require the owner to contribute more money and work longer hours first.
That trade-off may be worthwhile. But it should be intentional.
If your priority is dependable income and flexibility, I would evaluate an opportunity by asking:
After funding the business properly, how much additional cash will this produce—and how much additional responsibility will it require?
If You Want to Sell, Build Something Another Owner Can Operate
A future buyer needs to understand what will remain after you leave.
Who maintains customer relationships? Who prices the work? Who supervises employees? Who knows how to deliver the product or service?
If those answers consistently point to you, transferring the company becomes more complicated.
Preparing for a sale means making the business understandable and transferable. That includes reliable records, clear responsibilities, documented processes, and clarity on assets, liabilities, and key agreements.
The SBA’s guidance on selling a business emphasizes valuation, a comprehensive sales agreement, and planning how the business will operate during the transition.
Start preparing before you need a buyer.
A useful test is:
Could someone evaluate this business without relying on explanations that exist only in my head?
If You Want Family Succession, Prepare People as Well as Ownership
Passing a business to a family member involves more than choosing who receives the shares.
Who wants to run it? Who can run it? How will that person develop the necessary skills? What happens if several family members own the company but only one works there?
The outgoing owner’s income needs also matter.
A successor may need resources to operate and improve the company while the departing owner expects payments from it. You need to consider those demands together.
I would separate three conversations:
Who will own the business?
Who will manage it?
How will each person be compensated?
Those answers do not have to be identical.
Legal and tax arrangements require qualified advice. The operating plan requires equally serious attention.
If You Want Outside Investment, Define What the Capital Will Accomplish
An investor-backed growth plan needs more than an ambitious market estimate.
What will the money fund? What measurable progress should it produce? What happens if results take longer than expected?
Outside ownership also changes the relationship between the owner and the business.
The SBA notes that selling an ownership stake dilutes existing owners. Depending on the agreement, investment can also introduce reporting obligations, governance rights, and expectations about future returns.
An owner seeking greater independence should examine those commitments carefully.
Capital should support a defined plan. Raising it should not replace deciding what the business needs to achieve.
Recognize Where the Goals Compete
Consider an owner who wants larger distributions now, rapid expansion, and a sale in three years.
Each goal may be reasonable. Pursuing all three at once can strain the same pool of cash.
Expansion may require retaining earnings. Preparing for a sale may require investing in management and financial reporting. Larger distributions leave less money available for either.
The answer is to establish priorities, sequence the work, and understand the cost of each choice.
Otherwise, decisions that look sensible individually can pull the company in conflicting directions.
Write Down the Destination
I would ask an owner to complete this sentence:
“Over the next three to five years, I want this business to ______.”
Then identify:
What the company must be capable of doing.
What financial result the owner needs.
What role the owner wants to retain.
Which investments move the business toward that outcome.
Which attractive opportunities would pull it away.
Review those answers when making major decisions.
Your goals can change. When they do, the business plan should change deliberately.
A larger business is an outcome. A more profitable business is another. A transferable company, a dependable source of income, and a platform for investment are others.
Decide which matters most to you before assuming growth will get you there.
Aligning the Business With Your Goals
I work with owners to evaluate strategy, operations, capital, and transition decisions in the context of what they want the business to accomplish.
Learn more about my advisory work at RobertRitch.com.
Sources
U.S. Small Business Administration — Close or sell your business: sale preparation, valuation, ownership transfers, and transition considerations.
U.S. Small Business Administration — Grow your business: funding options, ownership dilution, and business transfers.
The framework and judgments in this article represent Robert Ritch’s advisory perspective.