Small and medium businesses often struggle to get funding for growth. Applications get rejected, terms are unclear or too expensive and the requirements can be so complicated that it feels like they were designed so that only big businesses can meet them. In many emerging economies, bank lending to SMEs remains low and alternative options like grants or equity are limited or hard to access. Building up profitability before funding is a key strategy to overcome these challenges.
If your business is already profitable, you can fund at least part of your own growth. This puts you in a stronger position when you have conversations with a potential investor or lender. In such a situation, you are better placed to decide if, when, and how you want external funding instead of being forced to accept whatever you can get.
This post explains how focusing on profit-led, organic growth puts you in a stronger position. Whether or not you ever raise external capital, these strategies help you grow on your own terms and build a more resilient business in the process.
1. Profits open more doors than pitches
Funders want proof that your business works, here and now.
We all know the stories of startups who presented their plans to VCs and walked away with millions of dollars. What you don't always hear, is that these businesses already had traction.
They had a clearly defined market, a strong founding team and initial uptake. Meaning that they had a product or service that people were willing to pay for, a team of people with a strong track record of doing something similar and a solid growth strategy to explain how they would use the funding they were asking for.
Funders look for execution capacity. As a business owner, your job is to provide the evidence.
Most businesses will never get VC funding because they cannot scale in the way that these investors are looking for. And they cannot offer the returns that these investors want. Banks and angel investors are usually the best type of funders for smaller businesses.
When your business is profitable, it proves that your business model is viable. It also proves that you have customers who are willing to pay and that you know how to manage your operations effectively.
Profit also makes you more independent.
You are no longer applying for funding out of desperation. Instead, you will be evaluating whether external money will help you achieve a specific outcome and if it is worth the cost. AKA the interest rate or the equity percentage that the funder is asking for.
This shift in mindset also changes the way funders respond to you. You are seen as a serious entrepreneur who has multiple options.
This is what profitability tells funders:
- You understand your customers and your market
- You are able to manage costs and pricing
- You have tested your offer and know it works
- You are already generating returns, even without external capital
In short, profits act as proof. And when funders see strong internal performance, they will be more likely to offer capital on better terms.
2. Funding readiness starts with a strong foundation
When deciding whether or not to give you money, a funder will look at the foundations of your business. A profitable business tells them that your internal systems are working well.
This is important because any money you raise — whether from a bank, investor, or grant provider — is only as effective as your ability to manage it. If your core operations are disorganised, inefficient, dependent on one big client, or not yet in place, funding will not solve your problems. It may even make them worse.
Profit-led businesses will usually have:
- Clear and updated financial records
- A well-defined customer base
- Good internal controls (stock, payments, cost tracking)
- A reliable cash flow
- A focus on Most Profitable Customers (MPCs)
Your Most Profitable Customers (MPCs) are the customers who buy most often, at the best margins and with the least hassle. Focusing on your MPCs increases both revenue stability and long-term profit. Serving them well also helps you grow without needing constant promotions, discounts, or expensive customer acquisition strategies.
3. Debt is a tool, not a lifeline
Debt can be useful, but only if your business is ready for it.
Too often, I see businesses looking for a loan to solve short-term problems instead of fuelling their long-term progress. That approach leads to stress and, in some cases, can even lead to a collapse of the business.
The difference lies in how you use the money. Any loan that you take should support a strategy that is already working. It should not be used to bail out a strategy that is failing.
Here are some examples of strategic debt use:
- Financing a piece of equipment that is guaranteed to increase output or reduce costs
- Bridging cash flow during seasonal dips when you already have confirmed orders
- Expanding capacity to serve more of your Most Profitable Customers
Now compare the above to these examples of risky debt use:
- Covering losses without fixing the root cause
- Paying salaries or overdue bills with no plan to generate new income
- Relying on informal lenders at high interest rates just to keep the business alive
When your business is profitable, debt becomes a choice. That is only possible if your financial foundation is solid.
4. Reinvest first, raise funding later
Many businesses look for outside funding when they haven’t yet fully made use of what is already available to them.
Profitability, even at low levels, gives you the ability to reinvest. That reinvestment can help to fund growth, test new ideas, invest in new opportunities and improve performance without the pressure or conditions that come with external capital.
Retained earnings are profits that stay in the business instead of being withdrawn. If you reinvest consistently, this can help you make real progress. Over time, this builds a track record of growth without debt.
Smart reinvestment areas include:
- Hiring one person to increase output or improve customer service
- Buying tools or software to save time and reduce errors
- Testing a new product or service with your existing customers
- Improving packaging or delivery to increase repeat sales
This strategy improves your ability to attract external capital at a later stage. A funder who is reviewing your financials will see that you have been able to make progress using your own profits.
Reinvesting is proof that you have bet on your business and that this bet has paid off.
5. Organic growth = leverage
Profitability gives you leverage.
When your numbers are strong, you get to choose who to work with, on what terms and when. You can say no to funders that don’t align with your goals, or negotiate better rates, more flexible funding structures and fairer agreements.
Financially healthy businesses usually show improvements in metrics like:
- EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)
- Net profit margin
- Debt-to-equity ratio
- Operating cash flow
These metrics directly affect how lenders and investors value your business. Strong numbers mean better loan conditions. It also means higher valuations if you decide to raise equity. A higher valuation means you can keep a bigger part of the business.
More importantly, leverage means that you don’t have to accept money under pressure. You can take your time, plan properly, and negotiate from a position of confidence.
Profitability gives you the opportunity to choose what is right for your business.
6. A better story for funders
A business that has grown through organic, profit-led strategies tells a compelling story:
- You identified what works and doubled down on it
- You focused on margins, not just sales
- You learned how to operate efficiently
- You reinvested profits, managed risk and built something stable
This is the kind of story funders want to hear. It shows discipline, maturity, resilience and strategic thinking. This is particularly valuable in emerging economies, because markets are less predictable and business environments are often more complex.
The opposite story — one that is built on constant fundraising, shifting priorities and weak financial control — does not inspire confidence. Even if your vision is exciting, funders will hesitate if the business itself does not reflect clarity and control.
Key lesson: if your numbers tell a strong story, your business will speak for itself.
Conclusion: build before you borrow
There is nothing wrong with looking for funding. But doing it too early, or for the wrong reasons, puts your business under pressure and limits your options.
If you focus first on building profitability:
- You generate your own capital through reinvestment
- You reduce dependency on debt or equity
- You improve your valuation, credibility and negotiating power
- You stay in control of your business
Being in control is important. It lets you grow at your own pace, choose the partners that fit your values and allows you to walk away from funding offers that do not serve your goals.
Want to find out if your business is funding-ready?
Take the free quiz to see where you stand and what to improve before your next funding decision.
