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Stephen Clifton – 30-May-2019
Good planning is a hallmark of all successful businesses.
But before planning comes the “Chemistry Test”… is the business right for you?
Good planning is a hallmark of all successful businesses.
For business success we believe its crucial that you work through a ‘Chemistry Test’ and then embrace a ‘Planning Process’
Step 1: The ‘Chemistry Test’: Is the business right for you?
For entrepreneurs we believe that there are 4 key questions to ask yourself before buying your next business. Explore these 4 key questions to confirm you’re getting into the right business for the right reasons:
Question 1: What are your lifestyle and financial goals?
Confirming financial and life-balance values before you start will allow you to properly prepare. The article, Our process for not only helping you not only build a great business, but also a great lifestyle, and our video Focus on your financial goal show an easy process for quantifying your financial goal. Knowing this precise amount then allows you to realistically work out what your business needs to contribute. Specificity is key.
Question 2: What type of business model suits you?
Understand the differences between a small “self employed” style business, and a larger “developed” business. The dynamics, personality and skillsets required are very different for proprietors of these business models. Are you best suited to a focus on profit through maximising the resources you have and managing costs or are you better suited to developing infrastructure and size?
You need to understand what you’re getting into and what will be required of you.
Question 3: How does your skill-set and personality profile fit the business?
Are you right for the business and is it right for you? Certain businesses require certain skill-sets. Is there a match? Have you completed a personality profile to assess your strengths and weaknesses? Again, is there a fit for this type of business? Know thyself. Ask these hard questions up front. Be brutally honest with yourself.
Question 4: What will be the business’ Sustainable Competitive Advantage?
How will your business win?
Is there synergy with the other 3 questions?
Only after answering these questions can you make an educated choice about either starting a business or considering the process of buying an established business (after a solid due diligence process).
If you have satisfied yourself that there is a good fit between you and the business, then it’s onto…
Step 2: Embracing the planning process
Understanding and applying the planning process helps you move towards your business growth and personal financial goals.
Key steps in the planning process include:
- Determining Your Financial Goal and Business Model
- Developing a Sustainable Competitive Advantage
- Building a Working Marketing Model, supported by:
- Operations – Building and delivering what you are marketing
- Financing – Making sure you have the cash flow and working capital required
- Human Resources – Ensuring you have the right people for the right job
- Innovation – Building a business that continues to evolve and improve
It cannot be emphasised enough, that effective planning is a fundamental requirement for business success.
By committing to the planning process, you will be more focused and will fully utilise the resources available to maximise growth.
Let’s consider a scenario…
Bill is considering buying an established business for $2M. It’s a light manufacturing enterprise, fabricating components for use in luxury boats.
Bill has determined that for financial security in retirement, he wants the business to be worth $5M in 10 years when he plans to exit. He has calculated the profit required to generate that business value. Based on that, he also estimates the sales required and the cost efficiencies he will need to achieve in order to achieve this profit and business valuation target. Throughout this 10 year journey of building the business, Bill also wants to maintain a healthy life-balance with his weekends free for family time and playing golf.
Will he be able to do it?
The rest of the planning process helps Bill to realistically assess if it’s possible.
Business Model, Fit and Vision
Bill understands that this business is currently heavily reliant on the proprietor and another key employee. There scope for growth in sales and profitability and he’s comfortable with developing the business with structure towards a more “developed model”. He understands the value of reinvesting profits into infrastructure. Bill also understands his own strengths and weaknesses and the value of empowering others who can work with him towards a business vision. Bill will be well suited to this business.
Sustainable Competitive Advantage
The business has generated a great reputation for providing a quality product and reliable delivery times. By further building on this reputation, registering a trademark for the brand name, and then effectively promoting the brand and further enhancing word-of-mouth from happy clients, Bill will create a strong and valuable brand within his industry.
Overseas manufacturers are providing lower cost generic products. However, local boat manufacturers require highly customised products. This is difficult for overseas competitors to replicate en-mass and remotely. The market’s emphasis on quality and service reduces price sensitivity.
Bill’s background is in boating sales. He believes he understands his potential clients’ needs and has fresh ideas on how to grow the brand of the business and build the client base. He has clear strategies for the product, pricing, selling and client retention.
Bill knows he needs to support the planned growth and marketing with the right amount of support and planning invested in the Manufacturing, Finance and HR divisions. He will do this with a high level of communication and planning in conjunction with his out-sourced Chief Financial Officer (CFO).
With this plan for the next 10 years, Bill is now ready to assess whether the business purchase price is right after undertaking the crucial due diligence process which asks, “Is the business really is what it is purported to be?” Nothing should be taken on face value. His outsourced CFO will direct the due diligence process for Bill to ensure all aspects are checked.
If the due diligence process supports purchasing the business at the asking price, Bill can then implement his structured and realistic plan for developing the business to a $5m valuation in 10 years’ time.
He’ll maintain his desired life-balance along the way, not burning himself out therefore keeping his health in tact.
Bill will then be perfectly placed to enjoy his well-funded retirement, perhaps sailing into many a sunset, on a luxury boat…
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