The # 1 Critical Mistake in Chasing Growth: A CFO’s Guide to Profit

In the world of small and medium-sized enterprises (SMEs), the drumbeat for growth is often relentless. We’re conditioned to believe that a rising turnover is the ultimate barometer of success and that includes many CFOs. But more sales, more clients, more reach – these are the metrics frequently celebrated. But what if this relentless pursuit of ‘more’ inadvertently leads to ‘less’ – specifically, less profit, less manageability, and ultimately, less sustainable success?

It’s a counterintuitive thought for many entrepreneurs, especially in vibrant sectors like tech, media, and the creative industries, where expansion can seem like the only path forward. Even in the not-for-profit sector, the drive to increase impact can sometimes mask underlying inefficiencies. However, at WrightCFO, we’ve seen first-hand that sometimes, the most strategic move a business can make isn’t to scale up, but to intelligently scale down. This isn’t about admitting defeat; it’s about smart, proactive financial stewardship aimed at building a leaner, stronger, and ultimately more profitable and resilient organisation.

The Siren Song of Turnover

Why is turnover so captivating to Founders as well as CFOs? It’s tangible, easily measured, and often directly linked to market share and brand visibility. A growing sales figure can feel like a validation of your business model and your team’s efforts. Banks, potential investors, and even internal teams can be impressed by a consistently upward-trending revenue line.

However, turnover is a vanity metric if not viewed in conjunction with sanity – the sanity of your profit margins. High turnover with wafer-thin (or non-existent) profits is a recipe for burnout, cash flow crises, and a business that’s perpetually running to stand still. In the current UK economic climate, where SMEs face persistent inflationary pressures, rising employment costs , and cautious consumer/client spending, the “growth at all costs” mantra becomes even more perilous.

When More is Decidedly Less: Recognising the Profit Drains

Several scenarios can lead to a situation where increased turnover actively erodes profitability:

• Low-Margin Mania: Chasing every sale, even those with minimal profit, can stretch resources thin. The cost of acquiring and servicing these low-margin clients can outweigh the revenue they bring in.
• The High Cost-to-Serve: Some clients or projects, despite their revenue contribution, demand a disproportionate amount of time, resources, and managerial oversight. This is common in service-based industries like tech and creative agencies if not managed carefully.
• Operational Overstretch: Rapid, unplanned growth can lead to inefficiencies. Systems creak, quality control can suffer, and your team can become overwhelmed, leading to mistakes and reduced productivity.
• Product/Service Proliferation: Offering too many services or products, some of which may be unprofitable or distract from your core strengths, can dilute focus and resources.
• “Zombie” Revenue Streams: These are parts of your business that generate turnover but contribute little or nothing to the bottom line, or worse, are loss-making. They consume resources that could be better deployed elsewhere.

If any of these sound familiar, it might be time to consider a different approach.

Strategic Scaling Down: It’s Rightsizing, Not Capsizing

Strategically scaling down is not about panicked, across-the-board cost-slashing. It’s a deliberate, data-driven process designed to optimise your business for profitability and long-term health. It’s about choosing quality over quantity, focus over sprawl. This is where the expertise of an excellent Part-Time CFO becomes invaluable.

A fractional or virtual CFO provides the strategic financial leadership that growing (and rightsizing) businesses need, without the cost of a full-time executive. They bring an objective, analytical perspective, crucial when making tough decisions that founders or long-serving managers might find emotionally challenging.

The Fractional CFO: Your Navigator for Profitable Contraction

So, how does a fractional CFO guide a business through a strategic scale-down?

1. Deep-Dive Profitability Analysis: The first step is a forensic examination of your financials. This isn’t just looking at the overall profit and loss statement. A fractional CFO will drill down into:
2. Challenging Sacred Cows: Every business has them – legacy services, long-standing clients who are no longer a good fit, or pet projects that drain resources. A fractional CFO, as an external partner, can objectively question these assumptions and facilitate difficult conversations based on financial reality.
3. Optimising Cash Flow in a Shifting Landscape: When strategically reducing turnover, cash flow management is paramount.
4. Scenario Modelling for Informed Decisions: “What if we dropped our bottom 10% of clients?” “What if we discontinued this service line?” A fractional CFO can build financial models to project the impact of these decisions on revenue, costs, cash flow, and overall profitability, allowing for data-backed choices.
5. Refocusing on Core Strengths & Ideal Clients: The analysis will reveal what your business does best and who your most valuable clients are. Scaling down often means consciously deciding to focus resources on these high-performing areas, potentially leading to deeper expertise and stronger market positioning. This is particularly key for businesses in the tech, media, and creative sectors where specialisation can be a significant competitive advantage.
6. Managing Stakeholder Communications: Reducing scale can unnerve employees, banks, or investors if not handled correctly. A fractional CFO helps craft a clear narrative, explaining the strategic rationale and the expected positive outcomes (e.g., improved financial stability, better long-term prospects).
7. Building a Leaner, More Agile, and Resilient Business: The ultimate goal is not just to cut, but to reshape the business into a more efficient, profitable, and adaptable entity. This might involve:

WrightCFO: Guiding Businesses to Sustainable Profitability

At WrightCFO, our team of fractional CFOs has extensive experience working with SMEs across the tech, media, creative industries, and not-for-profit sectors. We understand the unique challenges and opportunities these businesses face. When it comes to strategic scaling down, we don’t just crunch the numbers; we act as strategic partners. We help you identify the ‘good’ revenue that drives profit and the ‘empty’ revenue that drains resources. We guide you through the process of refining your business model so that every pound of turnover contributes meaningfully to your bottom line and your overall mission.

We’ve seen businesses make the brave decision to shed unprofitable turnover, only to emerge stronger, with healthier margins, reduced operational stress, and a clearer focus on what truly drives their success. They become more resilient to economic shocks and better positioned for sustainable, profitable growth when the time is right.

The Long-Term Gains: Beyond the Immediate Numbers

The benefits of strategic scaling down, guided by expert financial leadership, extend far beyond an improved profit margin:

• Reduced Stress: Running a business that is constantly chasing its tail is exhausting. A more focused, profitable business is often a more manageable and less stressful one.
• Improved Team Morale: When staff are focused on valuable, profitable work rather than firefighting or dealing with problematic, low-return clients, job satisfaction can increase.
• Enhanced Agility: A leaner business can often adapt more quickly to market changes and seize new opportunities.
• Increased Business Valuation: Ironically, a business with lower turnover but significantly higher and more consistent profitability can be more attractive to investors or potential acquirers than a larger, less profitable counterpart.
• Sustainable Foundations: You build a business that is designed to last, not just to grow at any cost.

Is It Time to Rethink Your Growth Strategy?

If your business is experiencing high turnover but your profits are stagnant or declining, or if you feel operationally overstretched despite growing sales, it might be time to challenge the conventional wisdom. The pursuit of “more” isn’t always better. Sometimes, strategically aiming for “less” in turnover can lead to significantly “more” in what truly counts: profit, sustainability, and peace of mind.

A fractional CFO can provide the objective expertise and steady hand needed to navigate this counterintuitive but potentially transformative journey.

This article was originally published here on 4th June, 2025.