Whatever your position on Brexit, you’d have to agree that it is a massive challenge.
Anyone who deals regularly with intra-EU trade knows the degree to which we are bound in to that system. Extricating ourselves from it in any sort of sensible timescale is an almost unbelievably complicated exercise.
Fortunately, our current crop of MPs and ministers are renowned for their grasp of detail and shrewd, common-sense approach to complex issues so I’m sure we’ll come out the other side richer and happier than we are now.
However, I’m not writing about Brexit per se – it just made me think about the parallels with how we approach big problems or issues or goals in our everyday business lives.
Whatever the issue we are facing, the old cliché always seems apposite: how do you eat an elephant? One bite at a time. The key to overcoming huge challenges is to break them down into a series of small ones and overcome them instead.
Take goals as an example. Many business owners will have one or two really big, terminal goals. For example, to sell the business for £3m in 5 years’ time.
Put like that, for many people it will seem remote; unachievable; pie in the sky. But real businesses do get sold and the owners of those businesses really do retire on the proceeds as they planned.
How do they do it? Here’s a way, using that goal as an example:
Step 1 – understand how businesses in your industry are valued. Many industries use specific rule of thumb methods, but for an “average” business, value is often expressed as X times average, maintainable (ie, not one-off) annual profit after tax.
X is typically somewhere around 3-6, although this again depends on the industry and market conditions at the time.
Assume it’s 5 in your case. Ignoring the time value of money and assuming tax is at 20%, to sell your business for £3m, you will need maintainable profit of £3m / 5 = £600k after tax, or £750k before tax.
Step 2 – calculate the gap between profit now and profit you need. Let’s assume you currently make profit of £300k before tax. You therefore need to increase annual profit by £450k over the next 5 years.
For the sake of simplicity (and to make a point) let’s assume that you are in a business with few direct costs, so an increase in sales feeds through straight to profit. You therefore need to increase sales by £450k over the next 5 years.
Step 3 – break it down. Sales of £450k over 5 years equates to £90k per year, which breaks down to £7.5k per month or £1,730 per week.
Which sounds the more achievable – £450k or £1,730? You’d be amazed how something like breaking the number down helps focus the mind.
Step 4 (the hard bit) – create a plan for how you are going to get those additional weekly sales, put it into operation and monitor the results. That’s something that will be different for every business so I’ll tell you what someone else did in a later blog.
There is nothing intrinsically different about overcoming a business challenge compared to overcoming any other challenge.
Break it down into manageable, human-scale chunks. Work on those, and I assure you the big one will sort itself out. It really does work. And, unlike David Davis, you won’t have Jean Claude Juncker sticking his oar in every 5 minutes.
Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.