What are your long term business plans?
An enjoyable part of my job is meeting with business owners 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 away.
A question I like to ask is – if the business could achieve anything, what would it look like in 5 years time? What about 10 years time? The answers I get vary, and many of them reflect the way that an owners personal life and business life intersect. Answers have included:
More time with family (especially young children)
A holiday house (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
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 essentially requires more time and/or more money. This makes planning for success a fairly similar process for many businesses and given the long time frame we’re working with here (5+ 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.
More time?
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 strike. The result of all this is that they don’t really have the time to truly disconnect and enjoy life outside of the business.
The solution 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 or illness) 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.
A great way to test whether you have the right resources in place is to take an extended holiday (minimum one month) during which you stay off email/phone/Slack and see how it goes. If you return and things are humming then you're on the right track, but if you return and the building is on fire then you've still got work to do.
More money?
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 future, let's say 10 years from now, and then work your way backwards so the figures appear more reasonable and achievable. An example might be useful here:
Kate 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 10% of gross revenues and we’ll assume here it can maintain current margins (if not improve them)
That means that, if Kate is the sole owner, turnover needs to be around $3 million to support the goal
Say the business turns over $500,000 at the moment, that will mean Kate needs to grow the business, on average, around 20% every year for 10 years to get to $3 million
That means year 1 she needs to increase turnover by $100,000, year 2 another $120,000, etc.
So, now Kate 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. She needs an extra $100,000 in gross revenues over the next 12 months, okay, so what next? She’ll need to put together a cohesive plan with a variety of strategies to achieve this target. She might try:
Speaking with clients to increase referrals
Get serious about the blog and create some great content
Increase social media efforts and marketing spend
Engage a PR company to increase the business’s profile (e.g. awards, articles, etc.)
Increase 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. Kate 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.
An alternative to all of this is to build a business suitable for sale. If the target is still $300,000 in passive income then you'd need to have investments capable of generating those kinds of returns. Let's say it's the share market and it returns ~9% meaning you'd need ~$3.3M invested to generate that kind of passive income. How do you get $3.3M? You build up the business and sell it. Normally small businesses are valued on a multiple of profit (a whole topic in itself), but let's say the business does okay and can get a multiple of 5 which means the business needs to be generating annual profits of $667K. If Kate can get profits up to that level then should could sell the business to generate her passive income goals. Options!
The disclaimer
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.