Why is financial growth important (for a business)?

This is a fantastic question for business owners, managers, and investors to all understand.

1. Expense increases via inflation are largely inevitable. In order to maintain profits and repaying capital sources (lenders and equity investors), a business must increase its revenue, via price or units sold.
2. The laws of compounding return for investors. Investors who gave money to the business expect to receive more money in the future and will often measure this return on an annual basis. For illustrative purposes, let’s say an investor put $100 into the business and expects 10% return. The business can choose whether to pay it as a dividend or hold onto it and reinvest it in the business. The retained value would be the following at the end of each year, $110, $121, $133.1, $146.4, and $161.1. In year five, the business needs to earn $14.7 (the difference between 161.1 and 146.4) to meet the requirement of the investor.
3. Competition and fixed costs. Good businesses attract competition because they earn profits and create value. This competition though will put pressure to do more with less - for processes to be more efficient and reduce overhead and fixed cost spending. In order to maintain profit margins, a highly competitive business will have to increase revenue. The new entrants to the market/industry will sell their product at a lower price to convince customers to switch. The existing companies will largely respond and a new prevailing market price will be set (the lower). But the existing company will need to make up the lost revenue from the lower price by selling more units. As competition stiffens, other advantages will come from great size and scale such as greater bargaining power with suppliers.