All business owners should know what they made last year. But do you know what your business is actually capable of making? 

That’s where an exercise I like to use comes in. I call it The Perfect Year. 

It’s a quick and easy way to uncover your business’s profit potential. It’s a bit like a forecast, but easier to calculate as you are using your own financial history to understand what your business has already proven it can achieve. 

Watch the video below for the full walkthrough or keep reading for the key points. 

 

build your perfect year 

 

The first step is simple. Pull together your last five years of profit and loss statements and drop them into Excel. Then add one extra column at the end called Perfect Year. 

You’re not trying to recreate one year. You’re taking the best parts of each year and bringing them together into one. The assumption being, if the best bits of the last 5 years all happened in the same year, what would we make. 

Now work through each section of your profit and loss statement, selecting the strongest results from the past five years.  

 

sales 

Start with your sales. 

If your business has multiple divisions or revenue streams, review each one separately and identify the strongest year for each. 

Don’t automatically choose the highest number. Think about why it was your best year. Was it driven by pricing? Higher sales volume? Or something that could realistically be repeated? 

Take the strongest result from each division and move it into your Perfect Year column. You’ve now got a sales figure where every part of the business is firing at the same time. 

 

gross profit margin

Next, look at your gross profit margin. 

Again, if possible, do this by division. 

Identify the year you achieved your strongest margin and apply that % to your Perfect Year sales figure. 

 

operating expenses

Now work your way through your operating expenses. 

Some years naturally have higher costs because of one-off projects, investments or unusual events. Others are simply run more efficiently. 

Review each major expense category and select the strongest result from the past five years. The aim isn’t to create unrealistic numbers. It’s to remove the noise and build a picture of what your business has already shown it’s capable of achieving. 

Some you might include as a % of income [or some other driver] and some will just be a fixed $ amount for the year. 

 

calculate your profit potential

Once you’ve combined your strongest sales, margins and expenses, your spreadsheet will calculate your Perfect Year profit. 

That’s your business’s profit potential. 

Not because you’ve predicted it, but because every part of it has already happened. Just not all in the same year. 

 

the real value comes next 

 

For me, this is where the exercise becomes really valuable. 

Go back and look at the years you’ve selected.  

What was it about those years that made them your best? 

  • Why were sales stronger? 
  • What drove the better margins? 
  • Why were costs lower? 
  • What was happening in the business at the time? 

Once you understand why those results happened, you can start putting strategies in place to recreate them.  

Maybe it’s a pricing strategy worth revisiting. Maybe it’s a process that improved efficiency. Maybe one part of the business simply needs more focus. 

Whatever the reason, you’re no longer guessing. You’re using your own history to build a plan for the future. 

 

final thoughts 

 

The Perfect Year isn’t designed to replace your budgeting or forecasting process. It’s a planning exercise that helps you understand what’s possible. 

As you work through it, remember to: 

  • Look beyond the numbers and understand what drove the results.  
  • Remove one-off or abnormal items where appropriate.  
  • Complete the exercise by division if your business has multiple revenue streams.  
  • Focus on what’s realistic and repeatable.  

The Perfect Year isn’t about building the perfect forecast. It’s about understanding what your business is capable of when all the stars align. Often a step in the strategic planning process that business owners struggle with when validating their business model. 

Once you know what that looks like, you have a clear target and a much better idea of what it will take to get there. 

 

we’re here to help 

The Perfect Year is a simple exercise, but it’s even more powerful when it’s part of a broader strategic planning process. 

If you’d like help identifying your business’s profit potential, we’d love to help. Reach out to me at j.knight@businessdepot.com.au or give us a buzz on 1300BDEPOT. 

  

 want more from us? 

If you found this article helpful and want more business advisory insights, sign up to our mailing list below!