The Only Three Numbers Your Business Needs to Plan For

As a proactive accountant, I've seen countless businesses waste valuable time creating elaborate budgets and forecasts that quickly become outdated. While traditional budgeting has its place in very small startups or large corporations, businesses in the sweet spot of £1-10 million turnover often find this approach counterproductive to business growth.

The truth is that comprehensive budgeting often becomes an exercise in futility. You spend days crunching numbers, only for a new client win, staff change, or innovative software solution to render your carefully crafted budget obsolete almost immediately. In the corporate world, entire teams dedicate themselves to constantly revising these forecasts – a luxury (and unnecessary expense) most growing businesses can't afford.

Instead of complex budgeting exercises, I recommend focusing on just three critical numbers that will truly drive profit in your business. This simplified approach provides the clarity and flexibility needed for businesses that want to grow without getting bogged down in excessive financial planning.

Number 1: Sales Target - The Foundation of Every Business

At its core, every organisation exists to make sales. Regardless of your role in the business – whether you're the receptionist, accountant, managing director, or salesperson – your job ultimately contributes to a team that delivers a sales number. Without customers, you simply don't have a business.

When setting your sales target:

1. Start with last year's sales as your baseline

2. Add increases to account for:

   • Inflation

   • Any cost increases from key suppliers

   • Desired margin improvements

   • A stretch goal for additional growth

     
     

A powerful approach is establishing three tiers of sales targets:

• Bronze: The minimum acceptable performance level – you must achieve this

• Silver: A solid stretch goal that pushes your team further

• Gold: An ambitious target that represents exceptional performance

  
  

This "podium finish" mentality ensures your team always has something to strive for. Once they hit the bronze target, they're motivated to push for silver, and then for gold – preventing the complacency that can set in when a single target is achieved.

Lead generation should be your primary focus. As I often tell clients, you can have exceptional service delivery and operational excellence, but without consistently bringing new business through the door, everything else becomes irrelevant. The day you stop marketing is the day your business begins to dry up.

Number 2: Profit Target - What Actually Stays in Your Business

While sales drive your business forward, profit is what actually remains to fuel business growth. Working with a Finance Director or Finance Manager can help you identify which profit metric matters most for your specific business:

• EBIT (Earnings Before Interest and Tax)

• EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation)

• Net Profit (what remains after all expenses, including interest, depreciation, and tax)

  
  

For most business owners, net profit provides the clearest picture of what can actually be reinvested or withdrawn from the business.

To set your profit target:

1. Take last year's profit figure

2. Adjust for any one-off costs that won't recur (legal bills, unusual expenses)

3. Factor in any known changes for the coming year (rent increases, new staff)

4. Calculate your profit percentage (profit ÷ sales)

5. Apply this percentage to your new sales target, plus a stretch goal

   
   

This is where the magic of scaling (versus simply growing) becomes evident. In a growing business, sales and profits typically increase in parallel. However, in a scaling business, you're looking to increase sales without proportionally increasing costs – leading to improved profit margins.

For example, if your business achieved 20% net profit last year and you're targeting sales growth this year, you should aim for 22-25% profit margin. This focus on margin improvement, not just total profit, is the hallmark of a well-managed business. Your Management Accounts should clearly track this metric to ensure you're on target throughout the year.

Just as with sales, consider setting bronze, silver, and gold profit percentage targets: 21%, 25%, and 28%, for instance. This creates clear benchmarks for financial performance that encourage continuous improvement.

Number 3: Cash Generation - The Ultimate Business Reality Check

Perhaps the most sobering metric for many business owners is cash generation. This simple calculation – the difference between your opening and closing bank balances for the year – often reveals a stark contrast between reported profits and actual cash available.

A business might show £50,000 in profit on its Profit & Loss statement but generate £60,000 in cash – or alternatively, show a healthy profit while actually decreasing cash reserves.

Understanding this discrepancy is crucial for sustainable growth.

Common reasons for differences between profit and cash include:

• Debt repayments (reducing cash without affecting profit)

• Capital expenditure on assets

• Tax payments occurring after the reporting period

• Changes in inventory levels

• Fluctuations in accounts receivable/payable

  
  

Setting your cash generation target requires:

1. Starting with your profit figure

2. Subtracting any loan repayments you're committed to

3. Subtracting planned capital expenditures

4. Subtracting other long-term investments

5. Adding a stretch goal for process improvements

   
   

For instance, if your profit target is £500,000 and you have £100,000 in annual debt repayments, your realistic cash generation should be around £400,000. Setting a stretch target of £450,000 encourages your team to find ways to improve cash flow through better processes – perhaps by encouraging customers to pay faster or optimising supplier payment terms.

Putting It All Together: The Power of Simplicity

The beauty of focusing on just these three numbers is simplicity and clarity. By establishing bronze, silver, and gold targets for each metric, you create a framework that:

1. Provides clear direction for everyone in the organization

2. Adapts easily to changing business conditions

3. Measures what truly matters for business health

4. Encourages continuous improvement through stretch goals

   
   

As a proactive accountant, I've seen businesses transform their performance by shifting away from complex budgeting exercises toward this streamlined approach. The hours previously spent creating and updating elaborate forecasts can instead be invested in activities that actually generate revenue and improve operations.

How Your Accounting Team Should Support This Approach

Your bookkeeping and accounting team should provide visibility into these three critical numbers through:

1. Regular, simplified Management Accounts that highlight these key metrics

2. Clear tracking of performance against bronze/silver/gold targets

3. Analysis of discrepancies between profit and cash generation

4. Actionable insights on improving all three metrics

   
   

Rather than expecting your accounting team to provide all the answers, the most effective approach is for them to surface the relevant data that allows you, the business owner – with your industry expertise and intimate knowledge of your operation – to make informed decisions.

Ready to Simplify Your Business Planning?

If you're tired of complex budgeting exercises that quickly become obsolete, it's time to consider a more streamlined approach. At Profit Cash Growth, our team of financial specialists can help you implement this three-number framework and provide the visibility you need to make better business decisions.

Contact us today to learn how we can help you focus on what truly matters for your business growth.

Remember: What gets measured gets managed. By focusing on the right metrics – sales, profit percentage, and cash generation – you create the foundation for sustainable business success.