Blueprint for Growth
Part one of a three-part series…
There is no greater loss than opportunity left uncapitalized. Do you have a long-term plan to maximize your profit potential by taking advantage of every opportunity for growth? Is each growth strategy fully developed with measurable goals for activities that, if achieved, would yield the results you seek? Breakeven analysis will tell you if the math pencils out.
An actionable blueprint for growth outlines the financial metrics and business milestones required to accelerate profitable growth. Consider a combination of these possible strategies:
- Growing the core business (organic growth – same services, same territory)
- Expanding the range (more products and services, same territory)
- Expanding the territory (add a location to extend the geographic reach)
To set actionable goals and measurable milestones for each strategy, you MUST do the math. If you’re a numbers person, you are saying “Yes! This is in my comfort zone.” If instead you’re saying, “I don’t like numbers,” it’s time beat your thought distortions and learn to use some basic business analysis tools to show you the way!
Here is a snapshot of the financial foundations for your blueprint for growth.
In this post I’ll share perspective on the first strategy, Grow Your Core Business. You’ll find detailed perspectives related to expanding range of products and services and your geographic territory in parts 2 and 3.
Grow Your Core Business
What is your core business? Caring for seniors at home or fur babies at your facility? Providing tonight’s dinner curbside? Whatever it is, your first growth opportunity is to do more of it. How much more? Do the math.
What sales are required to breakeven? That’s milestone one in your Blueprint for Growth. What sales would yield the return required to meet your investment goals? That’s milestone two, which we call Breakeven PLUS. A basic understanding of your cost structure and a simple breakeven formula will reveal the sales goals that serve as your milestones. Unfortunately, you can’t manage sales. You can only manage the activities that drive sales.
To make your sales goal actionable, establish targets for three sales drivers (leading indicators):
- How many customers?
- Buying at what frequency?
- At what average ticket price?
You’ll need goals and strategies for all three. Use past customer data for your location or franchise system as benchmarks. Then set actionable targets for these leading indicators of growth. If you know your lead conversion rate, you could work backward to determine the number of leads needed to acquire the target new customers. You could even use your cost per lead to set a marketing budget. This process provides measurable goals that keep your entire team on track. There are no shortcuts. Breakeven analysis will tell you if the math pencils out. You must do the math!
How Can Advisors and Franchisors Help?
Your CPA and business advisors should be well-versed in using breakeven analysis as a basis for setting sales and customer growth goals. If you need a tool for this, check out our profit planning calculator.
If you’re in a franchise, your franchisor should have strong infrastructure for supporting franchisees to grow the core business. Your Point of Sale (POS) or Customer Relationship Management (CRM) systems should track and report the leading indicators of success. And there’s more…
Recommend a Sensible Chart of Accounts: Enable tracking of variable costs separate from fixed costs. This typically requires tracking different types of payroll separately. For example, direct labor is usually a variable cost while sales and administrative payroll is typically fixed. If the chart of accounts only provides one bucket for payroll, it’s difficult to assess the cost structure – that is, the true variable cost percentage and average monthly fixed costs.
Provide Financial Education: Provide knowledge, financial skills, and tools. Insure they have numbers they can trust, and they know how to use financial information to make better, more profitable decisions. This includes a solid understanding of the many uses of breakeven analysis – an essential skill for every business owner and business consultant. Check out ProfitSoupOnline.com for a quick start, scalable solution to get your team on the right financial track, right now (ICFE Education Credits available).
Benchmark Your Key Performance Indicators: Collect, analyze, and share information. Demonstrate what “good” (and achievable) performance looks like at various phases of unit maturity. Benchmark sales, productivity, and profitability metrics as well a risk, debt service and cash flow ratios. With these points of reference, investors and franchisees can construct reliable plans and obtain the financing they need to succeed.
Do the Math
You wouldn’t build a house without a blueprint, and you shouldn’t attempt to build a business without one either. Be the architect of your future by creating your own blueprint outlining the financial foundations for growing your core business.
In my next post I will detail the blueprint for growth when expanding your range of products and services.
Need a Tool to Help?
Download our Profit Planning Calculator – a budgeting tool that incorporates Breakeven Analysis in your business planning process.