KNOWING YOUR LONG TERM BUSINESS PLANS
One part of my job that I really enjoy is meeting with clients to discuss what their long term goals are. Many people I speak with have started their businesses as a reaction to something, with a common story being they were very good at their job and worked for a sub-par boss which has lead them to think to themselves “I can do this … better”. In the words of Michael E Gerber, they were great technicians, but hadn’t given a lot of thought to the two other hats they would need to wear – that of the risk-taking entrepreneur, and that of the conservative and planning-oriented manager.
Another thing they hadn’t given much thought to was what the long term plans for the business are. Many will have some short-term goals, largely around resolving cash flow or staffing issues, but not many have a five or ten year plan or have even thought about something seemingly so far in the distant future.
A question I like to ask is – if the business could achieve anything, what would it look like in 10 years time? The answers I get vary, and many of them reflect the way that an owners personal life and business life intersect in a very real way. Answers have included:
- More time with family (especially young children)
- A holiday house on an island (and the time to enjoy it)
- Being able to get back to creative work (i.e. do the work, not manage the work)
- Never worrying about money again
- Paying off the mortgage (this is Sydney, after all)
- General work/life balance
- Spend time on sports/hobbies
- Money to fund charitable causes
As you can see, there are a variety of reasons that people give, everyone is a little different. However, when you simmer it down, what you’ll find is that each goal – whilst a little different – essentially requires more time and more money. This makes planning for success a fairly similar process for each business and given the long time frame we’re working with here (10 years) we can be quite grand with our aspirations as we’ve got time to achieve them – and besides, even if we fall a bit short, the results can still be pretty awe-inspiring. Even just simply thinking about these things and writing down some rough plans can give you a renewed excitement and energy about the business – I can highly recommend it from personal experience!
Many business owners find they work all day, every day, and never really switch off. They feel that if they do switch off something will go wrong, they’ll lose clients, and disaster will run rampant. The result of all this is that they don’t really have the time to truly disconnect from the business and enjoy life outside of the business.
The solution to this lies with your team and hiring the right people at the right time. You’ll need to identify the skills that you have that need to be replicated in other team members – this is important because if you’re called away for any reason (e.g. family emergency, illness, etc.) it means the business, or at least particular parts of it, don’t grind to a halt in your absence. Once these skills have been identified you’ll need to figure out which team members are best suited and if you’ve got nobody, you’ll need to plan to hire the right people at the right time. Map out the skills you need on a timeline which will then dictate what training and hiring needs to be done and when.
Many people’s goals fall back on more cash – whether for family, themselves, or charity. What I find useful here is to come up with a grand number for the year 10 point and then work your way backwards so the figures appear more reasonable and achievable. An example might be useful here:
- Billy runs a small marketing agency and wants to be earning $300,000 a year in passive income (i.e. not working for it) in 10 years
- Currently the business can afford to pay dividends equal to around 5% of gross revenues and we’ll assume here he can maintain current margins (if not improve them)
- That means that, if Billy is the sole owner, turnover needs to be around $6 million to support his goal
- Say the business turns over $500,000 at the moment, that will mean Billy needs to grow the business, on average, around 32% every year for 10 years to get to $6 million
- That means year 1 he needs to increase turnover by $160,000, year 2 another $211,200, etc.
So, now Billy has his turnover forecast aspirations mapped out for the next 10 years. Seems scary, but we just need to focus on year 1 for now. He needs an extra $160,000 in gross revenues over the next 12 months, okay, so what next? He’ll need to put together a cohesive plan with a variety of strategies to achieve this target. He might try:
- Speaking with clients to increase his referrals
- Get serious about his blog and create some great content
- Increase his social media efforts and marketing spend
- Engage a PR company to increase the business’s profile (e.g. awards, articles, etc.)
- Increase his prices
There are virtually endless ways of drumming up new business and they don’t all have to involve spending a lot of money, but they will involve time and commitment. Billy will also need to map out what staffing and other overhead needs he’ll have in order to support that kind of revenue turnover. A useful tool here is to use a productivity calculator to map out what each staff member costs and what they can potentially be charged out to clients at.
Okay, that’s all fine, but you’ll then notice in later years the growth figures become exponentially larger and more difficult to achieve. At this stage Billy might look at taking on investment or debt funding in order to acquire smaller competitors in order to hit his targets. Whilst this may seem like a big deal today, if he has this idea in mind now, he can be on the lookout for suitable acquisition businesses over the coming years so that he knows who to approach when the time is right. Planning is everything here.
Now, even if Billy’s grand plans don’t come off, even if he only gets halfway, he’ll still have taken his $500,000 a year business and turned it into a $3 million a year business. Not a terrible result. Shoot for the moon and all that.
Of course, any growth plans need to realistically reflect the type of business you own, your ability to generate new business, and your ability to manage a growing team with changing needs and demands. Saying you want millions is one thing, but running a business that can actually generate that kind of money is something else entirely. It’s also worth noting there are other ways to go about making your riches – via investing, for example – however that’s not the point of this article, we’re here to talk about business goals.
All businesses owners want different things, but often what they want can be boiled back to the two we’ve discussed above – time and money. Having a think about what you want to achieve in the long-term with your business and then putting together some long and short range plans and strategies to achieve them can be a very rewarding and eye-opening experience. If you’d like to discuss your business and what you hope to achieve with it, please get in touch today, we’d love to help.