Plan Your Work; Work Your Plan-1

A Cliché’ Worth Remembering (Part One)

As a business consultant and financial advisor, I talk to hard working people every day who talk about their future and what they want to attain in life.  Young wage earners speak of buying their first home yet make no plan to establish a good credit score or save for the down payment.  Parents say they want their children to get an education beyond high school yet make no plan to prepare them for scholarships or save for tuition.  Others express their desire to retire securely yet have no budget or retirement savings.  And, to the point of this article, business owners express their desire to get paid one day for their life’s work (their business) yet make no plan to realize that payday.

Why do smart, hardworking businesspeople profess their wish for a bright future, yet fail to create and execute a plan?  It’s simply not logical for people to not act in their own self-interest.  I’m sorry I don’t have an answer, fortunately though, I’m wise enough to leave psychological analysis to others.  Instead, this issue will focus on the essential components business owners need to attain the pinnacle of business success: Building a perpetual business, one that warrants an exit payday, and sustains a successor owner.  While liquidation can be an option, this article is written for the owner who will define a plan and has the discipline to work it.  You get to choose!

Here’s a theoretical illustration: Imagine a 45-year-old business owner desires to retire not later than age 65 and receive $500,000 for the business (in addition to net assets value and possible real estate).  Companies demonstrating consistent cash flow can obtain a multiple of ~2-4x cash flow; therefore, we need annual cash flow of about $150,000 and the support systems and staff to sustain it.  This is the beginning of your plan.  It’s that simple.  There’s always a place to start.

Let’s add a little more financial detail.  The current profit margin averages 8% of sales; therefore, we need revenue of $1,875,000.  But, you say, “I’m only doing $1,000,000 of revenue now.  I can’t do $1.875 million in sales.”  By my way of thinking, you just made the choice to give up.  You’re done.  You decided your future will be less than your stated desire and, you still have no plan!

If you choose instead, to work your plan, you would consider ways to increase sales (more product, longer hours, second location, advertising) and improving your profit margin (increasing price, lowering costs).  A margin improvement to 12% equates to annual sales of $1,250,000.  At this point in our illustration, we’ve only begun.  More refinement is required; however, please have conviction in this: There is always a way to attain a goal if, you have a plan to achieve it and, you have the self-motivation to work it