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Episode 33: Planning your 2023 business growth strategy
In this episode of The Wize Guys Podcast, Jamie Johns touched on how to determine your ideal turnover to reach your ideal income. This is part of the barriers to growth that will allow you to develop an effective business plan and growth strategy.
Find out the best tips in accounting business’ planning for 2023!
Timestamps:
0:43 - The concept of business plan and growth strategy
1:12 - How to figure out your ideal income
2:18 - Grab your FREE business plan template
3:28 - Step-by-step guide to creating your growth plan
Quotations:
“...part of overcoming the barriers to growth is to try and reach what your ideal turnover or fees are in order to reach your ideal income.” - Jamie Johns
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Jamie Johns: Hi everyone, it's Jamie here from The Wize Mentoring. Welcome to the next video.
In this video, we're gonna talk about our business plan and our growth path. Now, part of overcoming the barriers to growth is to try and reach what your ideal turnover or fees are in order to reach your ideal income. So we're just gonna revisit this ideal income calculator for a minute so that we can then put a plan together to know how we're gonna reach the required turnover we need to have in order to have the ideal income.
So in this example, let's just say that our ideal income is 500,000. So we're gonna put in 500,000. The abider that we think we can achieve is around 25%, and we think that we can get a gross profit of a minimum of about 60%. So once we put in steps one, two, and three, we just need to go down and have a look at what fees we need for the desired income. You can see from here that if we wanna a design income of around half a million, our desired fees need to be about 2 million. And obviously, with $2 million, we need to have the cost of goods at about 40%, our GP at 60%, and our overheads, and expenses at 35%. And that will give us our bidder of 25% of 500,000.
Now on the next sheet, we're just gonna go back and have a look at this business growth plan. This template is part of the wise network downloads that you can use so you can help determine the future path of your firm so that you can grow it. The beauty of this template is it looks at your debt to equity, it looks at your level and it also determines what your interest might be. So it's the very strategic and very big picture.
In order to use this spreadsheet, we're just going to put here what our future growth plans are, as we saw in the previous spreadsheet or template of 2 million. And we know if we have a 2 million turnover, we can make it around about 500,000 a bid year a year. We'll just say the current year is 2018. And let's just say for example, that our current fees are around a million dollars. For argument's sake, let's say that we already have an existing debt in the business of about $250,000. The next step we need to do is we need to have a look at some realistic organic growth. Now, when you're starting out in the early days, if you return emails and return phone calls, often you'll grow it by around 10% plus every year. Obviously, it becomes harder as you get bigger to grow at that rate. So we're just gonna be conservative and I might just make it 5% every year.
So we'll walk our way down this spreadsheet. Again, you can see that in the current year we've got around a million dollars in fees and we think we'll pick up for more organic growth of around 5%, which is 50,000. So, let's not forget the goal that we need to need to get to 2 million. And you can see here if we plot along at around a 5% growth rate, we are not going to get to 2 million, somewhere in the year, the 2030s. As you can see from the spreadsheet there of an accumulated growth of 5% each year.
So what we need to do is we need to look at some tuck-ins and some mergers. And this is part of what Ed taught me to do here at Sky Accountants. We looked at different acquisitions and it's really propelled our growth along.
If we have a look at this, for example, let's just say next year, we find a firm that has around 500,000 in fees and the current owner doesn't have a succession plan. So you are looking at purchasing his practice. So we place 500,000 in there and you can see now that we're getting up closer, looks like we're going to hit the 2 million mark in around 2024. So around seven years from now. Based on that, we might want to do it a little bit quicker because of timeframes. So we might actually just push in perhaps another little tuck in here in 2022 of perhaps 250,000. And you can see there that in about five years' time, we can get to the 2 million mark, which will then also achieve our ideal income. So we'll just work our way through this spreadsheet.
So we've got total fees and you can see there that we pick up some really good growth rates in the years that we purchase some other firms. The additional debt comes through 500,000 there and 250,000 there and 2022. The next line here is we've got the concept of our 1 million teams. You can see there that once we get up to around 2 million, we can actually have two teams or two senior client managers and they'll be managing around a million dollars each.
The growth per client manager is around 42,000, and that's simply to get about 5% growth each year. So you would think that it would be quite achievable with a good marketing plan in place that we can pick up new fees of around 42,000 each.
Now the next part here is we need to put in our bidder, and we mentioned earlier that it needs to be 25%. If we're gonna borrow funds from a bank, we also need to look at the interest rate that they might charge us. And so we're gonna put in 8% there just to be conservative.
The next part is if we borrow money from the bank as well, we'll need to repay that over a certain number of years. So we need to look at perhaps just 15 years to be a little bit conservative. Some people can go interested only, for example.
The other part of this is we need to work out what a profit distribution is. So perhaps if we decide to distribute around 30% of our profit at this stage, and also the tax rate. We will have to pay tax to look at this from a cash flow point of view. So if we come back and revisit the first year that we've made our acquisition, the abider or 25% of our fees is around about 400,000. The interest on the loans that we've got, which is the 500, and our existing debt of two 50 is about 56,000. So that gives us a net profit there from a tax perspective of 344,000.
Now, if we just have a look at the cash flow effect, our debt repayment over 15 years is about 50,000. The profit distribution at 30% of the net profit is, is about 120,000. The tax there is 30%, which is about 103,000, and the cash remaining is 71,000. And we have an accumulative cash balance there of about 162,000.
The final part of the spreadsheet is what our goodwill is worth. You can see there when we make another acquisition of 250, it hits just over the 2 million mark. We also have an accumulative balance of our debt, less our principal repayments along here. So you can see there that when we do the acquisition, our loan-to-value ratio goes to 44%. It's a great idea to keep it under 50% for a bit of fat or equity in the business. You can see there, it steadily goes down, then it pops back up again when we make our next acquisition. Now if you like, you could always do a third acquisition and some years ahead and you might, for example, put another 500,000 in there and you can see there that again, our asset jumps up. Obviously, our debt jumps up, but our LVR is still in a safe range there at 35%.
So I hope you can use this tool and use this video in order to achieve your ideal income. And if you've got any questions, let us know. But by all means, take a day out, and do a strategic planning day. And you can certainly use acquisitions and the tuck-ins or mergers to help grow a firm to reach the ideal income that you need. Okay, bye for now.