Before starting, download our Business Size Calculator here and then use this video to work out an accurate figure for your lifestyle costs.
Hi, this is Ian from Refresh Accounting.
In our article ‘How big does your business need to be?’ we set out a 3-step process to help you develop a business that serves your lifestyle and breaks the grow-at-all costs traditional business owner mindset.
Hopefully, you have already downloaded the Refresh Accounting Lifestyle Cost Calculator and you now know how much you need to earn to meet your lifestyle choices. If you’ve downloaded it and filled it in, then you’ve completed step 1 of the 3-step process.
If you haven’t done that yet, find the calculator and video here!
In this video, I’ll show you how to complete the next step using our simple Refresh Accounting Business Size Calculator.
Business Size Calculator Instructions
As you can see, the Business Size Calculator spreadsheet is already open. It’s easy to fill in and the calculations are all automated, but you will need to do some extra calculations yourself to get the figures as accurate as possible.
Firstly, we’ll complete the current position in column D, then we’ll move to the required columns F and G.
On my screen, the cells that require entries are highlighted in yellow. I’ll click on them all now so that you can easily identify them as I know that the highlights colours do change, depending on the monitor that you are using.
In column F and G, you will also notice 3 cells, these three. They are all linked to the information that you put in the corresponding cells in columns C and D, so for example cell F12 equals cell C12.
So, onto the instructions.
First, get a copy of your current profit and loss from your accounting system.
The first cell that you complete is the current sales, net of GST, enter the amount in cell D10. I’ll enter $250,000 so that there is an example on the screen. You will see that as I enter information in column D the spreadsheet automatically calculates the amounts in columns F and G.
The next cell that you will enter is the amount that you spend on materials or sub-contractors that are used to make sales, put this amount in cell D12. Do not put in wages for employees as these are usually a fixed cost and will be incurred anyway. In this example, I’ll put in $100,000.
You will see that there are two entries for overheads, 3 if you include your pay. The reason for this is that it is important to split the overheads between those that are fixed and those that have a correlation with sales. Most businesses will have credit card costs, shipping to customer costs etc. in overheads, but these are only spent if there is a sale. Enter overhead costs that have a correlation with sales in cell D13. I’ll enter $25,000.
Next enter the rest of the overheads, except any owner pay into cell D17. I’m going to say $75,000. Before finally entering the amount paid to you, the business owner in cell D18. In this instance, I will enter $50,000.
You will see that in my example the Profit amount is now zero in cell D19 and that the cells in columns F and G are now partially populated.
Determining Your Business Size
Now that the current position has been entered, it’s time to look at where your business needs to be to match your lifestyle costs that you calculated using the Lifestyle Cost Calculator.
Enter the annual Lifestyle Cost into cell G18. In this instance, I am going to say that my annual lifestyle costs are $80,000 per year. You will see that cells adjacent and above the Gross Profit row, row 15, have all recalculated now that I have entered the annual lifestyle cost figure.
When you have entered your lifestyle cost, you may well have come to a number that gives you a great estimation of what your annual pay should be from your business. Wouldn’t that be great! Imagine getting paid what you are worth, that doesn’t happen for many business owners.
But business owners, like you, deserve more than getting paid for the work that you do in your business. You also deserve a reward for the risk you took in creating the business in the first place. What if your business paid you a quarterly dividend as a reward for your investment, like you may get from your share investments? Let’s build in a return for you as the business investor of just 1% by entering that in cell F19. Now the sales figure in cell G10 changes to $313,131. If you can get your business to that you will be properly paid for the work that you do and get a reward for investing in your own business.
I wonder, what do your figures look like?
Book a call now and we’ll help you develop a business that is permanently profitable and meets your lifestyle needs.
As I said on the Lifestyle Cost Calculator instruction video, if you’re in business, then happiness comes from having a business where the business and business owner are in harmony, where the business serves the owner at a level that provides the ideal work/life balance, not from having the biggest company that it’s possible to have.
Thank you for watching.
Read our full article on why it’s a good idea to determine exactly how big your business needs to be by clicking here.