Guide: Business Purpose

Compared to personal life, a business’ why, vision, values and goals are much better-understood concepts.  Once these are defined for the business they will empower not just the owner(s) but all staff:

  • Why – to better understand ourselves.
  • Vision – to inspire and aspire to.
  • Values – to believe in and belong to.
  • Goals – to own and contribute to.

The owner(s) need to have absolute clarity over what they want from this business, especially how they’re going to generate wealth from it, and then clearly communicate this with the team so that everyone is completely clear and aligned with what they need to achieve. It goes far beyond just the current team though as a values and vision fit is essential when recruiting as evidenced by the extract below from a Frucor job ad:

“Frucor…strikes fear into our competitors, admiration from our consumers and customers, and immense pride in our employees.”

 


Sales & Profits

No matter what you’re driven by, even if you’re a charity, you need to make money out of this business. Businesses that make more money create greater wealth and opportunities for owners, employees and any causes you support.

There are only two ways to make money in business:

  1. Profits – the most common way.
  2. Sell some/all of the business – the most under-utilised way. To sell some or all of your business you first have to start by increasing sales and/or profits anyway.

For the former, there are also only two ways to increase profits:

  • Increase sales – this usually has the biggest impact, which is why it is the focus of this strategic growth program.
  • Decrease costs – important, but usually a quicker, easier and smaller gain.

The sales and profit targets you create for the business should always align with the shareholders personal wealth goals e.g. an owner-operator is going to find it hard to increase their salary from $70,000 to $150,000 if the business is only making $50,000 profit.

Ask yourself what level of sales and profits you need in order to fund the lifestyle you want, and/or exit sale you want to achieve.


Shareholder Salary & Drawings

Most business owners need to make money on the way through their business journey, especially as many may never get a partial or full exit sale opportunity. Some of you may also not want to sell, so are dependent on these annual salaries and drawings to fund your lifestyle.

Your salary and drawings are your “pay days” over the course of many years owning and operating your business. They are dependent on cash flow availability of course, but are most dependent on the level of profits you make. If you want a higher salary and drawings, then you generally need higher profits, which generally means higher sales, which means you have to grow.

As an owner, you need to be completely honest when determining the amount of money you need to extract from the business each year in order to fund the lifestyle you want. It doesn’t benefit anyone from understating or underestimating this.

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