Most people who own a business, particularly SMEs, are looking for it to achieve the required level of sales, revenue, or profit for them to achieve what they want in life.
There are financial metrics around that but there are also non-financial metrics. Personal and business goals are inextricably linked – which is why at RightWay we always ask our customers what their non-financial goals are too, it helps us understand what they want to achieve from their business.
There can be a tendency in accountancy to advise around running a business off a budget. Often new customers will come to us and they’ve got a budget, but no clear strategy. That’s where good planning comes in, because your budget should not dictate your strategy, your strategy should be dictating your budget.
Planning gives clarity. Every business needs to have a clear vision of where it is going and what needs to be done to get there. Effective planning is about much more than simply finance. It’s about culture, innovation, working with your staff, and all the different things that go into your business. It’s about your financial goals and your non-financial ones at every stage of the life of your business. Often goals that are not financial, still have a financial outcome. They need to be built into business planning, but are often not addressed.
We’ve had start-up customers come to us with strong aspirations and a budget in place. The first thing we ask is what is the minimum they need to achieve for their personal living costs. Often they haven’t thought of that. The foundation of every business budget is that it should provide you with what you need to operate personally, establish that and then you can look at the levels for business growth.
We also have customers who are working 60+ hours a week and don’t have time to watch their kids playing sport, so their goal is to be able to achieve the balance to do that. Trade customers often tell us they want to work towards getting ‘off the tools’ because they don’t want to be doing physical work at 50. That means establishing goals and steps to get the business to a level that can sustain them being in a management role.
Succession or exit planning is another non-financial goal which is likely to have financial outcomes. Succession in particular can be very complex, and some business owners simply don’t address it. But that means decisions may need to be made in a short time frame, and may not be the best decisions for all parties involved. It is never too early to start planning your exit strategy. We are working with a farming couple in their early 40’s with young children, who are already building succession planning into their assets to ensure a smooth and fair transition in 15-20 years’ time.
Some people haven’t even considered an exit plan. We ask them what they plan to do with their business when they retire, and they say they will shut up shop. They see it as having served a purpose. But that is a business that has built up value. If you start planning your exit strategy in your 40’s, then you have many years to steadily take the steps to build it into an asset that will better facilitate your retirement.
Your business advisor should be talking with you about both your financial and your non-financial goals, and the steps you need to put in place for your business to achieve those. And if your advisors isn’t talking to you about that, then it’s time you raised it with them!
Have you read our other blog on business planning for 2022? Check out Business Planning for 2022