Have you ever heard of the 5x5x5 growth technique for business? It’s a great tool to ensure you are making the most out of the income your business is providing.
I work with many business owners giving them plans and ideas to increase their overall net worth and maximize the most valuable asset of their life – their business. According to the Exit Planning Institute, 80% of business owners’ net worth is their business. Knowing that often a business consists of that much of my clients’ net worth, their business MUST be healthy.
One relatively new technique I suggest to clients is called the 5x5x5 growth technique. It is a simple but powerful concept that you too can implement in your business.
The concept of this process is:
1. Increase Sales by 5%
2. Increase Gross Margins by 5%
3. Decrease SG&A/Expenses by 5%
The first five (percent) deals with sales in our business. We’re going to try to increase the sales of our business by 5%. There are a number of ways to do that. However, because each business is specific, a simple article like this simply could not cover the many sales-boosting methods available to you.
The second 5% is – we want to increase the margin or the gross margin of our business by 5%. That’s not a lot. Now, if you’re wondering what margin is, that’s your net income divided by your gross income. We want to increase that number by just five percent. Now, I’m not saying that if you are at a margin of 40%, you’re going to increase the total margin to 45%. I’m saying is 40 x 5% = 42% — so we just moving our margin from 40% to 42%. This is much easier to make happen.
The part of the technique – we’re going to drop our SG&A, or expenses by 5% (in layman’s terms). That doesn’t sound that hard, does it?
So we’re going to increase our revenue or sales by 5%. We’re also going to increase our margin and decrease or SG&A by 5% each. After you get the numbers up once or twice then you begin to run an efficient, lean, mean business. It is not unheard of that using the 5x5x5 technique in your business could increase the business value by 25-30%. Think about it, if you can run the 5x5x5 technique once or twice a year, whatever works for your business, you could theoretically double or triple the value of your business in a 10-15 year period. That is serious cash!
So how specifically do you implement 5x5x5? That’s where you work with a true wealth planner. A planner will show you specific ways to work 5x5x5 and other techniques, into your unique business.