Running a Business

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one.

Author: Henry McCabe

Goals- A Someday Goal

On October 10, 2013 I wrote: "I've yet to meet a person running a small business that does not want to grow sales and profits." In a subsequent post I wrote that  you should write or update mission and vision statements, evaluate your current situation and prepare strategic and tactical plans. In two later posts I provided a list of questions to ask yourself as a means of evaluating your current situation. The answers should provide a guide to what needs to be done to bring about growth. If you have done those things, you should be ready to begin work on a road map to the future.

But wait, I've skipped something!  In order to go somewhere you have to pick a destination. In this case a set of long term goals for the business. Those business goals should satisfy your personal goals. That is, what is it that you want the business to do for you. I call them Someday Goals because it may take years for you to attain them. Many business planning guides skip this vital step. That is a mistake you can avoid by a sitting down and working out some long term goals. Someday Goals may be qualitative, such as returning to a normal work week or establishing an exit time date and strategy. Others may be quantitative.

Compensation, a quantitative one, is most important, unless you are running a hobby business and do not care how much income the business provides. Don't be a hobbyist. Decide on a Someday Compensation Goal that should be achievable and develop a financial profile of what your business needs to look like in order to provide that amount of compensation. Below is a tool I developed for my clients as a way to arrive at a Someday Goal for compensation. If you want a copy of the spread sheet, go to the web site for the SCORE office I work from, fill out the Request a Mentor form and in the What business question block write: "Please assign Henry McCabe. Henry, please send the Someday Goal Tool." If you have a business question I might answer, write that in as well. I'll get back to you by email.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Answer to last quiz: A Valuable Customer      Definition Quiz. What makes a customer Valuable?

Someday Goal For My Business- Compensation
Instructions
Use this spreadsheet to develop a financial profile of what
your business would have to look like in order to provide
a given level of personal income for yourself.
Based on that profile you can develop a plan for how to
get there from where you are today. This is different from
developing a financial projection because instead of estimating
the results of action over the short term, 1 to 3 years, you are
"backing into" the  amount of sales and and related costs needed to produce
the amount of income you desire. They become a set of goals to meet.
Once you have set a goal you can flesh out the model with details on
revenue, cost of sales and expenses.
Research industry data to establish a profile of revenue and expense.
Replace the sample data with your data in the cells color coded:
The results will appear in the cells color coded:
Factors and Results	Scenario 1
Factors
Owner's cash compensation goal $	$125,000
Owner's compensation goal % sales*	15.0%
Estimate of cost of sales % sales*	50.0%
Estimate of overhead cost % of sales*	30.0%
Net cash flow retained for reinvestment goal % sales*	5.0%
*Percents must total 100 %. True if they do. False if they don't.	TRUE
Results
Sales required to achive goal	$833,333
Estimated cost of sales for those sales	$416,667
Estimated overhead for those sales	$250,000
Resulting net cash flow (profit)	$166,667
Net cash flow taken by owner	$125,000
Net cash flow left for re-investment or as retained earnings	$41,667
Warranty and Copyright
The author does not warrant that the results of the worksheet are correct. Use at your
own risk. Report errors to the author. ©H. W. McCabe 2013. All rights reserved.