Projections, forecasts, budgets – call them what you like; we all need to somehow get a feel for what our business’ future looks like. A neat little exercise we often like to do to help clients is what I call the ‘perfect year’.

Essentially, it’s another way to predict what the future could look like, but I tend to use it more when dealing with business owners who don’t actually have clarity on their business’ profit potential. Yes, you need to predict income levels, but as always, it’s profit that matters most.

“Sales are vanity, profit is sanity, cash is reality.”

 

it works like this

  1. Review the last 5 years of profit [I suggest dumping the figures into excel].
  2. Identify which year produced the best income results [by category or line item].
  3. Identify which year produced the best result as a percentage of income for variable expense [category or line item].
  4. Identify which year produced the best $ result for the fixed expenses [category or line item].
  5. Assume all the perfect results happened in the same year and determine the perfect year profit [I add a new column to the right of the years downloaded which brings together all the perfect results into one year].

The difference between your ‘perfect year’ and your actual results this year amounts to the profit potential you have left on the table. Focus on each item and put in place strategies to work towards ‘perfect’ for each item, and you will undoubtedly get closer to reaching your potential.

If you’d like to see an example of the ‘perfect year’ exercise, feel free to reach out to me.

 

word of warning

Of course, it’s extremely rare that you will have a ‘perfect year’, but it can happen. The important thing to focus on here is the gap, because the gap represents wasted profits!

With almost all businesses ultimately being valued as a multiple of EBITDA, not only is the wasted profit a lost opportunity in that year, but it also reduces the value of your business. Improve your profits, improve your cashflows and improve the value of your business too!

 

we’re here to help

Need some help working out what your ‘perfect year’ might look like? Reach out to our team and we can take you through the exercise.

 

get more insights 

If you found this ‘perfect year’ exercise helpful and would like to receive more valuable tips on improving business profitability and maximising your business value, sign up to our mailing list here!